IRA Transfer
I currently have a traditional IRA and want to transfer it to a different fund company. I want to open 3 index funds (US stock, int'l stock, bond) with the new fund company but not sure if I should open them all as IRAs. Will this be a good move for my retirement horizon of about 25 years or should I transfer the amount into two IRAs and open the third IRA as a regular account? What would the best way to divvy up the amount?
Answers
364 points
ISIStudios answered one year ago …
You can buy and sell funds within your existing IRA...so if you want to sell your current holdings and then buy new funds, that's not a problem.
But if you mean you're completely switching to a different bank/brokerage, then you'll need to transfer the IRA account to the new brokerage first. Ask your broker for an ACAT form, he/she will know what it is and what you need to do with it.
All of the funds you mentioned (in principle obviously because I don't know which fund companies manage them, what their track record is, etc.) seem like a good diversified fit for a retirement account.
4085 points
EthanR answered one year ago …
If you take IRA money and open a non-IRA "regular" account with that money, you will have to pay a 10% penalty, plus taxes on the amount! That would be self-defeating. Traditional IRA money will grow tax deferred for 25 years. It is easy to transfer the money from one brokerage to another, as ISI mentions above. If you are in your 30's, a good way to divide the money would be 35% U.S. stock, 35% International stock, and 30% bond fund.
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2775 points
Oldman answered one year ago …
All of the above are good advice...To transfer assets from an IRA at one company to another, you need to get a custodial transfer, so they don't charge a 20% withholding and then you pay a 10% penalty on the amount that wasn't redeposited within 60 days
. You can also do only one IRA rollover every 366 days, so be carefu lto read the IRS guidelines. If you were rolling (custodian - custodian) from a 401K or 403b to an IRA, there wouldn't be a time limit.
Moving funds from one IRA to twenty others in one transaction is only ONE transfer, so you can certainly split up an existing IRA, but why would you want to ...there are lots of custodians that handle stock and mutual funds; one of the few reasons to split IRA's has to do with specifying beneficiaries independently. If this is your aim, speak to a certified, fee-only financial planner, first.
Another thing to keep in mind, you may want to consider a partial conversion of some of the IRA's to a Roth, if your MAGI is <100K in the next 2-3 years...because marginal rates on conversions will probably revert back to what they were in 2000, before the lowered tax rates took effect. I know everyone's been salivating at the thought of converting IRA's in 2010 (when there will be no MAGI cap on conversion) but the current plan is to tax the conversion at 1/2 in 2011 & 1/2 in 2012. Sounds great, until you consider that marginal rates may be 39-41%! Again, you can do a full or partial conversion, but only one per year.
This far from retirement, I would really go slow with moving accounts, to be sure the paperwork at the place you want to receive the money is in place, correct and all approved ...and then ... have them contact the current custodian to get the funds. The current custodian must respond to their request, and may charge a small account closing fee, but the current custodian can drag the process out. Don't try to do this late in the year (say, after October) or you'll end up with a screwed up 5498 tax-report for the fiscal year.
Be aware that you can't merge SEP_IRA's with traditional ones, etc. etc.
Getting back to the question of what to invest in - in a sheltered account: you may not borrow or loan funds: you can't do shorts and puts.
Watch out for index funds that may pass along Unrelated Business Taxable Income from their holdings ... limited partnerships and many non-stock holdings in financial sectors (futures, commodities, grantor trusts that hold actual commodities) do file a K-1 form to report this to the IRS. UBTI > $1000/yr in any combination of IRA's will disqualify the tax shelter and you'll be paying taxes on the disqualified IRAs.
In addition, if you don't have a Roth account, consider when and if you might. It's worth it.
But much more importantly, begin to develop a taxable investment base, so you have experience, and cash, available at relatively low taxation rates, because the minimum required distributions from large traditional IRA's can affect a lot of other retirement costs (e.g., the amount you will pay for Medicare will be larger, the amount of Social Security payments that will be taxed will be larger, etc.)
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904 points
jillybeansisme answered one year ago …
Boiling it all down for you --
*You don't want to change from an IRA to a regular account because of taxes and penalties.
*You might seriously want to consider moving it to a brokerage house (such as Charles Schwab, etc.) where you can choose whatever investments you pretty much want for your IRA.
*You want to do a direct rollover -- i.e., have the new place move it for you so that you do not take possession of the money. If you take possession of the money, the old place must retain 20% for taxes, but you must put 100% into the new account within 60 days of withdrawal from the old account. In a direct rollover, no taxes are withheld.
126 points
David answered one year ago …
The only thing I would add is that the first step would be to research the custodian first and find one that suits your style before you move. Also,and this is just my opinion, with the horizon you are talking about I would go with a little more risk than index funds even if just doing a Teeka ETF sector strategy.
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122 points
twitham answered one year ago …
I am recently retired. Moved my 401K into a Fidelity IRA which is self directed. I trade stocks, options at will, I don't think I can do margin deals. So, I can buy and sell with no tax consequences, don't have to keep track of buy costs vs sell costs, or any of the
yearly tax requirements. Just have to pay taxes on withdrawals as regular income.
tom
379 points
dustbusterz answered one year ago …
in this answer forum Oldman says you cannot borrow or loan funds from your IRA account. is this a new regulation? i worked for Campbells for 10 years. while there, i had a supervisor who had a retirement account , and he loaned money to me through this account. i had to deal with his bank , who handled his retirement account for him, and in borrowing this money, i had to sign papers just like you would if you borrowed money from a bank. i had to agree to a payment schedule and an agreed upon interest rate.and the money went right back into his retirement account.so my question here is , did they change the laws regarding retirement accounts or something? cause he was not allowed to take money out of the account (without incurring penalties and such) but he could order his bank to loan the money to me with a repayment schedule .
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