If you have a Roth IRA, you may want to move that money to another Roth IRA elsewhere. There are lots of reasons you might want to do so. For example, maybe the current financial organization that has your Roth IRA has high account fees, and you would like to find another custodian with little or no fees. Or maybe you’ve found a new financial advisor who works with a different custodian than your current one. Whatever the reason, you can move your Roth IRA funds to another custodian at any time. But, there are certain rules that must be followed.
There are two ways to move Roth IRA money to another Roth IRA:
1. 60-day rollover
2. Direct transfer
If you choose the 60-day rollover option to move your Roth IRA money, you first must ask for a distribution payable to you from your current Roth IRA custodian. After you receive the distribution, you have 60 days from the date you receive the funds to redeposit (rollover) them to another Roth IRA. If you miss the 60-day deadline, the funds aren’t rollover eligible and you will lose the benefit of future tax-free compounding of earnings on that money inside a Roth IRA. Also, you a
re limited to one-rollover-per 12 months from each Roth IRA you have.
If you choose the direct transfer option, you ask your current Roth IRA custodian to transfer the funds directly to your Roth IRA at another custodian. In a direct transfer, you don’t have use or control of the money; it’s sent right to your Roth IRA elsewhere. The direct transfer option has the advantage of not being subject to a 60-day limit or a one-rollover-per-year restriction. As a result, the direct transfer option is less problematic than the 60-day rollover option.
If you have assets in your Roth IRA such as securities, those assets can also be moved to another Roth IRA. If you choose the 60-day rollover route, the same assets that are distributed to you must be rolled over.
- By Joe Cicchinelli and Jared Trexler
Smart money/Coming Soon
Mailbag
Thursday's Slott Report Mailbag
Consumers: Send in Your Questions to [email protected]
Q:
You recently said that a 401(k) distribution would add to your MAGI (modified adjusted gross income) for the purpose of determining if you are subject to the 3.8% healthcare surtax. What about Roth IRA distributions? Would they also count towards your total MAGI income for surtax purposes?
Thanks
A:
IRA distributions are exempt from the 3.8% surtax, but taxable distributions from IRAs can push income over the threshold amount, causing other investment income to be subject to the surtax. Because Roth IRA distributions are generally tax-free, they don’t count towards your total MAGI.
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