You can transfer funds from one traditional IRA to another traditional IRA or from one Roth IRA to another Roth IRA. One way to accomplish this is by having the trustee or custodian of one IRA transfer the funds directly to the trustee or custodian of a second IRA without ever distributing the funds to you (a "trustee to trustee transfer").
You can instead arrange for the trustee or custodian of your IRA to first distribute your funds to you (an "indirect" or "60-day" rollover). To avoid taxes and penalty, you must then roll the funds over into another IRA by contributing the funds to that IRA within 60 days after receiving the distribution from the first IRA (the IRS can waive this 60-day rule under limited circumstances, such as proven hardship). Transferring funds from a traditional IRA to a Roth IRA is considerably more complicated (see below).
Tip: You can also roll over funds from an employer's qualified retirement plan (for example, a 401(k) plan) to a traditional IRA or Roth IRA. (Roth 401(k) and Roth 403(b) funds can be rolled over only to a Roth IRA, not to a traditional IRA).
Caution: When considering a rollover, to either an IRA or to another employer's retirement plan, you should consider carefully the investment options, fees and expenses, services, ability to make penalty-free withdrawals, degree of creditor protection, and distribution requirements associated with each option.
Caution: Under recent IRS guidance, you can make only one tax-free, 60 day, rollover from one IRA to another IRA in any one-year period no matter how many IRAs (traditional, Roth, SEP, and SIMPLE) you own. This does not apply to direct (trustee-to-trustee) transfers, or Roth IRA conversions. A special transition rule applies for 2015: a tax-free rollover you made in 2014 is disregarded when determining whether a 2015 distribution can be rolled over, but only if the 2015 distribution is from an IRA that did not make, or receive, the 2014 rollover.
Roth IRA conversions
You can convert or roll over all or a portion of the funds in your traditional IRA to a Roth IRA. Similarly, you can generally roll over (convert) eligible distributions of non-Roth funds from an employer-sponsored retirement plan (like a 401(k)) to a Roth IRA. If you do so, those funds will be included in your taxable income for the year (to the extent that the funds consist of pre-tax or deductible contributions and investment earnings). The decision whether to convert funds is complicated and should not be made without consulting a professional advisor.
Investment choices appropriate for your IRA Rollover
Remember that an IRA is not itself an investment, but a tax-advantaged vehicle in which you can hold some of your investments. Choosing specific investments to fund your IRAs is an important decision. Here are some points to keep in mind:
- You need to decide how to invest your IRA dollars based on your own retirement goals, tolerance for risk, investment philosophy, and other personal factors
- How fast your IRA dollars grow is largely a function of the investments that you choose, as well as tax deferral
- There are specific types of investments that you cannot use to fund your IRAs (such as collectibles), and there are some choices that usually make more sense as IRA investments than others (e.g., mutual funds, CDs)
- If you're unhappy with your IRA investment choices, you can typically move your money to other investments offered by the same financial institution, or to a different institution
- You should consider any fees associated with opening and maintaining your IRA
Caution: All investing involves risk, including the possible loss of principal. Before investing in a mutual fund, carefully consider its investment objectives, risks, fees and expenses, which can be found in the prospectus available from the fund. Read it carefully before investing. You should talk to a financial professional about choosing appropriate investments for your IRAs.
Caution: The IRS has ruled that the wash sales rules apply if you sell stock or other securities outside of your IRA for a loss, and purchase substantially identical stock or securities in your IRA (traditional or Roth) within 30 days before or after the sale. The result is that you cannot take a deduction for your loss on the sale of the stock or securities. In addition, your basis in your IRA is not increased by the amount of the disallowed loss.