Roth IRA owners who want to transfer their account to a new depositary can avoid taxes and penalties if they follow relatively simple rules. Can I rollover Roth IRA to another Roth IRA?
Reasons why you might want to transfer your Roth IRA
There are many reasons to consider moving a Roth IRA from one guardian to another:
- High account fees, transaction costs or management costs.
- Your trustee has a limited number of investments available.
- You have a new financial advisor who works with a specific account depositary.
- You can simplify your resources.
Roth IRA transfer methods
The safest way to switch from one Roth account to a new one is to transfer directly from depositary to depositary. But there is an alternative that we will go to later.
In the event of a direct transfer, the current Roth IRA depository transfers part or all of the money from the account directly to the Roth IRA account with another depositary. Direct transfers are not subject to taxes or penalties.
Please note that it is crucial to transfer Roth IRA money to another Roth IRA and not to a traditional IRA or other type of account.
It is usually best for the trustee to initiate the transfer at the request of the account owner. The type of assets held in Roth will also affect the process. The receiving depository usually has on its account the owner of Roth indicating whether the assets should be transferred in kind or, in the case of non-monetary assets, liquidated and subsequently transferred.
Distribution to the account holder
Another, though more risky option is the account holder who asks for a check from his existing depositary, which means that it is his responsibility to deposit money into his new Roth account. However, to be considered tax exempt for the new Roth IRA, the money must be deposited on this account within 60 days of receiving the check.
Why should I consider converting Roth IRA?
Although you will have to pay current income tax on the Roth IRA conversion amount, a money transfer can still be beneficial if:
- Take care that you will be in the same or higher tax group after the payment.
- We will not need converted funds for at least five years.
- May pay cash conversion tax.
- You want to leave your heirs tax free.
The decision to initiate a Roth IRA conversion depends on your personal and financial situation and should take into account your potential for higher portfolio end value, property planning goals and tax risk diversification options. Answer a few short questions to see if the conversion is right for you, and adjust your next steps.