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Transferring Your Roth IRA

A Roth IRA is the most preferred type of investment vehicle because this allows tax-free growth. The taxes for Roth IRA are paid upon contributions, and so the investors will have the opportunity to enjoy tax-free profits for their investments. They will also enjoy tax-free withdrawals as long as they meet the required parameters. This is the reason why it is really important to choose the best types of investments for our Roth IRA, and choosing the best IRA company is highly recommended. Roth IRA owners are also advised to find the IRA provider that offers no fee Roth IRA, so they can maximize their returns in the future.

If you already own a Roth IRA, however you mistakenly chose to open such IRA plan with the wrong IRA provider that charges you with higher maintenance fees, worry not — because transferring your Roth IRA to another IRA custodian is allowed. If you decide transfer Roth IRA from your current custodian to another custodian, you do not need to worry about the 5-year holding period, because the new custodian should maintain the correct contribution year. In order to do the Roth IRA transfer, you will need to fill-out some papers and let your new custodian handle the transfer transaction.

Roth IRA Rollover vs Roth IRA Transfer

Some people may be confused on the difference between Roth IRA rollover and Roth IRA transfer. Though some people interchangeably use the terms “rollover” and “transfer”, the truth is that these are two different things. With an IRA rollover, you will literally take the assets out of an IRA account, and reinvest such funds into a new IRA account within a 60-day period. With an IRA transfer, you will just move the IRA funds from one custodian to another, without literally receiving the funds.

Given the above explanation, a Roth IRA transfer must be done if you are just switching IRA companies. With a Roth IRA transfer, you will not receive the funds, and so there is no need to worry about the 60-day rollover rule. This is just considered as “trustee-to-trustee IRA transfer”, and the transaction must be done between IRA custodians.

Important Things to Consider in Making Roth IRA Transfer

If you have finally decided to change custodians, then transferring your Roth IRA is the best option for you, and this is definitely not a rollover. You have to note though that your previous IRA custodian may charge a fee for closing the account. For some cases, the new custodian will handle such fee — though you have to be very careful about this and make sure that the new custodian do not deposit such amount into your Roth IRA, as that might be considered as contribution.

In fact, one of our recommended IRA providers, OptionsHouse, is offering a limited promotion for you to get up to $600 when you rollover or transfer to an OptionsHouse IRA! Make sure to take advantage of this office while you still can.

You also need to make sure that the new custodian take up the correct contribution year status, so that you will not have to start with the 5-year holding period all over again. Furthermore, you also need to pay attention to your monthly tax statements to make sure that the transaction was done correctly.


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Maximize Your IRA Contributions for 2018 - Learn How