Question: Linda has a traditional IRA account with Fidelity Investments. What are the methods of transferring her account to another brokerage firm without incurring taxes and penalties?
Answer: Linda has two choices for rolling over her account from one firm to another. The first choice is to have the assets distributed to her, and then, within 60 days, recontribute all of the funds to a different account. Fidelity Investments will send Linda a check for the funds in her account. As long as the check is made out to the receiving trustee for the benefit of the taxpayer, it is not treated as a distribution to the taxpayer. Linda has 60 days to recontribute the assets to an eligible plan willing to take the contribution. If she misses the 60-day recontribution period, she would be taxed on the distribution and could be subject to an early distribution penalty. In some cases, the IRS may agree to a penalty waiver if the deadline is missed for good cause. Linda may roll over amounts out of her IRA only once within a 12-month period from the date of receipt of the distribution.
The second choice is a “direct rollover” from her IRA to the trustee of the receiving plan (sometimes called a “trustee-to-trustee transfer”). In this method, Linda never receives the plan assets and the trustees of each plan simply transfer the funds.
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Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing. All taxpayer circumstances are different, and NATP recommends contacting research services if you have specific questions about your clients’ tax situations.