3 How To Transfer An IRA From One Bank To Another

(doylc.com) How To Transfer An IRA From One Bank To Another - You may want to transfer an IRA if you find a bank with more attractive interest rates, want to consolidate your finances, or if your agent is changing companies. While a wire transfer requires some attention to detail, it's a relatively simple process. Open an IRA account at your new bank, fill out a transfer instruction form, and then allow 3 to 5 business days to complete the transfer. Converting a traditional IRA to a Roth IRA involves taking a few additional steps to manage your tax liability.

• How to opening a new IRA

Choose between a traditional IRA and Roth IRA. If you do not already have another IRA with another institution, you must open a new account before making a transfer. You must consider your entire financial plan when deciding on a new IRA.

If you currently have a Roth IRA, you will need to open a Roth IRA with your new bank. You cannot transfer or transfer a Roth IRA to a traditional IRA.

If you currently have a traditional IRA, opening a traditional IRA with the new bank is probably your best option, especially if you're in a higher tax bracket or nearing retirement. Contributions to a traditional IRA are not taxed. You pay tax on distributions received from the account after you retire and are likely to be in a lower tax bracket during retirement.

If you're in a low tax bracket and expect to pay higher taxes later in life or in retirement, it may be best to open a new Roth IRA. Your contributions to a Roth IRA are taxed at your current, low tax rate. You don't have to pay tax on distributions you receive in retirement, when you may have a higher tax rate.

Remember that if you transfer untaxed funds from a traditional IRA to a Roth IRA, you will have to pay taxes. If your tax rate is currently under 20 percent but you expect to pay 25 percent in retirement, taxing a Roth conversion can save you money in the long run.

Look for a provider with low fees and strong investment opportunities. Look online for reviews and consumer reports. Choose a new bank with low or no annual fees, low-cost investment options (such as mutual funds with no transaction fees), and great customer service.

Some banks also adjust contributions for a limited period (e.g. the first 3 years) or offer other incentives. Make sure these incentives aren't negated by high portfolio management fees.

Paying higher ongoing charges by even a fraction of a percent can cost thousands over the life of your IRA.

Ask your old bank and potential new providers about transfer fees. Both banks charge you transfer fees and must disclose these fees in advance. When looking for a new bank, compare the fees of potential providers. Ask your current bank how much they charge and make sure the switch is worth the cost.

For example, a new bank might offer lower portfolio management costs that justify paying transfer fees in the long run.

Make sure your assets are transferrable. Ask a prospective newcomer if any of your assets might be non-transferrable. If you cannot transfer an asset, you may have to liquidate it, resulting in a tax liability. You may be able to keep non-transferable assets at your old bank, but fees will apply if you don't contribute to the old IRA.

Non-transferable assets may include securities that were only sold by your old company or mutual funds that are not available with a new company.

If you have significant non-transferable assets, liquidation could put you in a higher tax bracket and holding it in an inactive account could be an unreasonable expense. If so, you should reconsider the transfer or try to find a company that can facilitate the transfer.

Check with your agent about moving to a new firm. When a broker or investment advisor changes companies, they often ask clients to transfer accounts to their new company. If so, make sure it is in your best interest to switch companies.

Ask them why they are moving to a new company and if they will be compensated for convincing you to transfer accounts. Discuss tariffs, fees, and other financial incentives for switching. Don't forget to check if your assets are transferrable.

Contact the new bank to open a new account. Once you've decided on a new bank, visit their website, call them, or visit them in person to create a new IRA account. The process is simple and is similar to opening a bank account.

You cannot start direct deposit without first opening an account with a new company.

• How to transfer directly

Make a transfer instead of a rollover. After opening the new IRA, you should retain your old IRA rather than transfer it to the new account. In a transfer, the funds go directly from the old company to the new company and are not taxable.

When you transfer money, your old bank sends you a check and you have 60 days to deposit the money into a new IRA. If you don't deposit the money on time, you'll have to report the entire sum as taxable income, and if you're under 59 1/2 years old, you'll have to pay an additional 10 percent penalty.

Contact your new bank if you need to switch mutual funds. An IRA is not an investment; it's more like a savings account that holds your investments. It can be beneficial to refocus your investments after changing banks. Ask your broker or investment advisor about changes to your portfolio.

For example, your new bank may offer broader investment options with higher annual returns and lower or no transaction fees.

Keep in mind that you must transfer the old IRA in full to avoid tax liability. You cannot withdraw cash from the old IRA account, transfer the balance, use the withdrawn money to purchase new assets, and then deposit those new assets into your new IRA account. You would have to pay tax on these withdrawn funds based on your current tax bracket, plus applicable penalties.

Submit a Transfer Instruction Form (TIF) to your new bank. Fill out a TIF to start the transfer process. You can submit the form online on your new company's website. You will need to provide your identification details, old account information, transfer amount, transfer date and other details.

If you get divorced, you may need to transfer part of an IRA to a new account in your name or in the name of your ex-spouse. In this case, instead of the total IRA amount, enter the transfer amount due to you or your ex-spouse.

Contact both banks during the transfer process. After you submit the TIF, the new bank will request a wire transfer from your old bank. The old bank sends a statement of assets to the new bank, which then approves the transfer.

The transfer process should take 3 to 5 business days. During this time, call both banks regularly to check your progress.

The transfer can only be refused if your assets are non-transferrable or do not conform to the policies of your new business. If you've made sure your assets are transferrable beforehand, you shouldn't have any problems.

Compare your bills after completing the transfer. After the transfer is complete, wait for your new company to send your first monthly bill. When you receive it, compare it to the last statement you received from your old bank. Make sure your numbers match and that all your assets have been transferred correctly.

If you find any discrepancies, call your old and new bank for an explanation. If necessary, contact the compliance directors of both banks. If you do not receive a satisfactory answer, contact the Securities and Exchange Commission at http://www.sec.gov.

• How to managing a roth conversion

Know your tax liability before committing funds to a Roth IRA. Converting a traditional IRA to a Roth IRA makes financial sense in certain circumstances. It's a good move if you have losses or deductions that offset the tax liability incurred as a result of the conversion. However, if the conversion would put you in a higher tax bracket and you don't have additional funds to cover higher taxes, switching to a Roth IRA is probably not advisable.

If your contributions to your traditional IRA were deducted from your paycheck as pre-tax income, they were not taxed. If you transfer your traditional IRA to a Roth IRA, you will have to pay taxes on those funds based on your current tax bracket.

Never withdraw money from your traditional IRA to cover your tax liability. The money you use from the old IRA to pay your tax liability would be counted as ordinary income, further increasing your taxes due.

Make sure you can make a direct deposit to a Roth IRA. You should be able to transfer funds directly from a traditional IRA to a Roth IRA using the same steps as transferring one traditional IRA to another. Call your old and new bank to make sure. Some firms can only transfer funds to a new Roth IRA indirectly or by mailing a check.

If your old bank has to send you a check, make sure you deposit the money into your new Roth IRA within 60 days. Any traditional IRA funds not paid into the Roth IRA are subject to additional taxes and penalties.

Report the transfer on your next income tax return. You must complete Form 8606 to account for the conversion on your next income tax return. Any untaxed portion of your old traditional IRA that has been transferred to your new Roth account will be taxed based on your current tax bracket.

You may be required to prepay taxes expected at the time of conversion.