IRAs and 401(k)s are powerful savings vehicles with tax benefits that allow you to maximize your savings dollars. Fortunately, the tax code allows you to move money from one account to another without significant penalties through rollovers and transfers. While these methods of moving your money are similar, there are some significant differences you should understand, especially as they pertain to taxation and the IRS.

4 Top Questions on IRA Rollovers & Transfers

What is a transfer?

IRA transfers are the simplest ways to move money between accounts, with one provider sending funds into another account. To qualify for a transfer, the accounts must be of the same type, so you can’t move funds from a Roth to a traditional variety using a transfer.

What is a rollover?

Rollovers are very similar to transfers, allowing you to move money from any type of retirement account into your IRA. In a direct rollover, the funds move from one provider to another. You can also opt for an indirect rollover, in which your former provider gives you control of the money. You then must deposit the funds into your new qualifying account within 60 days. If you don’t complete the transaction within this window, it will be considered a distribution and taxed accordingly. 

Do they have to be reported to the IRS?

Transfers don’t have to be reported to the IRS, since the funds are moving from one account to another with the same tax status. Rollovers generally do have to be reported, although there usually isn’t a tax penalty if the process is completed correctly.

How many times can I perform a transfer or rollover?

There is no set limit to direct IRA rollovers and transfers, so you can deposit more money as often as you like. Indirect rollovers, however, are limited to one transaction per year.

For over 90 years, Armstrong County Building & Loan Association has been Ford City, PA’s local hometown financial institution, offering a wide range of deposit accounts and personal service. If you’re planning on opening an IRA, their friendly agents will help you choose the perfect account for you. Visit their website for more on their products and accounts or call (724) 763-7137 to speak with a specialist and make an appointment.