When to make an IRA rollover, or a transfer

A new law only lets people do one IRA-to-IRA rollover per 12-month period. What’s the reasoning behind this new rule? It eliminates the 60-day shopping window for the best CD rate. Also, to change banks, you must close your old IRA account and have the proceeds transferred to the new bank. The old bank charges a fee for this. How can I do it without incurring any expense?

If your bank’s fee is to wire your IRA proceeds to another bank, you may be able to avoid it. But if the fee is for IRA termination, you’re out of luck.

There’s an important difference between an IRA rollover and an IRA transfer.

In a rollover, you take an IRA distribution — but it’s not taxed because you put the entire amount into another IRA within 60 days. Previously, you could do one 60-day rollover per year per IRA account. The new rule limits you to one 60-day rollover every 12 months, period. (The reason for the change: People with multiple IRA accounts used the old rule to string rollovers together, generating a tax-free stream of cash lasting much longer than 60 days.)

In a transfer, you move IRA money between providers without taking a distribution. There’s no 60-day rule or annual limit on IRA transfers. One way to move an IRA is in an electronic, trustee-to-trustee transfer between two financial institutions. Alternatively, you can ask the old bank to give you a check payable to the new bank. The check must also have your name on it. For example: “ABC Bank for the benefit of James Smith IRA.” This isn’t a rollover because the check isn’t payable to you — and it may be free, or at least cheaper than a trustee-to-trustee transfer.

THE BOTTOM LINE There’s no annual limit on IRA transfers.

WEBSITES WITH MORE INFORMATION nwsdy.li/rollover and nwsdy.li/waiver