Understanding the language is the first step to understanding the portability rules of IRA transactions.
Transfers and rollovers are two methods of moving assets from one IRA to another IRA of the same type, e.g. Traditional to Traditional or Roth to Roth.
An IRA Transfer is a direct movement of assets from one IRA to another IRA in which the IRA owner does not take receipt of the assets. Checks issued as transfers are made payable to the receiving financial organization for the benefit of the individual’s IRA. No restrictions in the number of transfers can occur in a year, no IRS reporting for the transfer by either organization.
A Rollover is a reportable movement of assets between IRAs, the IRA holder takes receipt of the funds, e.g. the check is payable to the client. The issuing organization will report the distribution to the IRS on a 1099R based upon the IRA holder’s age and type of IRA. When the funds are deposited into another like IRA, the deposit is a Rollover, the receiving organization will report the rollover on a 5498, and an IRA holder will record the transaction on tax return.
Not all funds are eligible to rollover; know the rules before you distribute the funds out.
- Rollover the IRA funds within 60 days following the day of receipt of funds
- Restriction one distribution per IRA owner per 12 months, law changed 01-01-2015
- Required Minimum Distributions (RMD) may not rollover the portion that represents the RMD
- Non-Spouse Beneficiaries are not eligible to rollover funds distributed from an inherited IRA
Key differences between IRA Transfers and Rollovers:
|IRA Transfers||IRA to IRA Rollovers|
|Check||Payable to receiving financial organization||Payable to IRA holder|
|Deadline||No deadline to complete transaction||Within 60 days of distribution|
|Frequency||Unlimited||1 every 12 months per IRA owner|
|Required Minimum Distributions||Can be transfered||Cannot be rolled over|
|Reporting||Non-reportable||Distribution reported on 1099-R
Rollover contribution reported on 5498
-Ruth H., IRA Administrator