Moving Your IRA Money

The ability to adapt is built right into an IRA -- thanks to the direct transfer and rollover options.

Note: Unless you are converting a traditional IRA to a Roth IRA -- which triggers a tax bill on the amount converted -- you can't move money between the two varieties of accounts. The following discussions assume you are moving from traditional to traditional or from Roth to Roth.

Direct transfers

In most cases, a direct transfer will be the best way to move your IRA money.

It's simple: You instruct your current IRA sponsor to pass the money directly to another sponsor of your choosing. The money in the account never actually passes through your hands.

You can transfer all the funds in your IRA or only a portion. And you can make as many moves as you want. You could, for example, order $30,000 in a bank IRA transferred in $10,000 chunks to three separate mutual funds.

How to do it

Open an account with the new sponsor you've selected. You needn't deposit any money right away. Instead, you'll fill out a form with instructions to the old sponsor for transferring your funds to the new account.

While the direct transfer is the easiest method, it's not necessarily the fastest. Some transfers take weeks or, in some cases, months. Barring any hitches, though, three weeks should be ample time to complete a direct transfer. If you haven't gotten confirmation within that time, call both the new and old IRA sponsors and request a definite answer about what is causing the delay and when it will be resolved. If nothing happens, talk to a supervisor and follow up in writing.

Rollovers

The second way to move your IRA is with a rollover. In this case you're the go-between.

The current sponsor closes the account and sends you the money. You're then responsible for sending it on (rolling it over) to a new IRA sponsor.

This method has two advantages:

• Speed. Because you take control, you can personally push things along.
• Flexibility. Because the rules grant you 60 days to complete your rollover, you can, in effect, tap this money for a 60-day loan to meet a short-term financial emergency.

  If you miss the 60-day deadline, the IRA tax shelter dissolves, the money withdrawn from a traditional account is taxed (except for already-taxed contributions) and, if you're younger than 59½, you'll be hit with a 10% early-withdrawal penalty.

  If you miss the deadline on a Roth rollover, you can be taxed and penalized on any amount that exceeds your contribution to your Roth accounts.

Warning! Make sure the old sponsor knows you're rolling over your IRA so that 10% of the money won't be withheld for taxes. Ask whether any documents must be signed to prevent withholding.

Also note that you are permitted to do only one rollover just once every 12 months for all the IRAs that you have.