How Transfers and Rollovers Differ
By Alexis González-del-Valle, CIP
What are the differences between a transfer and a rollover?
A transfer is a direct movement of assets from one IRA to another IRA. Generally, transfers occur between IRAs of the same type: Traditional IRA-to-Traditional IRA, Roth IRA-to-Roth IRA, or SIMPLE IRA-to-SIMPLE IRA. However, an individual can transfer assets from a Traditional IRA to a SIMPLE IRA and from a SIMPLE IRA to a Traditional IRA once the two-year waiting period for the SIMPLE IRA has been satisfied.
In a transfer, the individual does not have constructive receipt of the assets. Thus, the check is made payable to the receiving financial organization (e.g., ABC Financial Organization, for benefit of Jane Doe’s Traditional IRA). If assets are being transferred in-kind (e.g., stock certificates, real estate), the assets need to be registered under the name of the receiving financial organization.
A rollover is a movement of assets from one IRA to another IRA or eligible retirement plan or from one eligible retirement plan to another eligible retirement plan or IRA. The assets generally can be moved either directly or indirectly.
In a direct rollover, the assets move directly from an IRA to an eligible retirement plan or from an eligible retirement plan to an IRA and the individual does not take constructive receipt of the funds or other assets. As a result, the check is made payable to the receiving financial organization or eligible retirement plan.
In an indirect rollover, the individual receives a distribution from his IRA that is generally rolled over to another IRA of the same type or to an eligible retirement plan. Or the individual receives a distribution from an eligible retirement plan and rolls it over to an IRA. An individual can also indirectly roll over assets from a Traditional IRA to a SIMPLE IRA and from a SIMPLE IRA to a Traditional IRA once the two-year waiting period for the SIMPLE IRA has been satisfied. The check is made payable to the individual and that individual has 60 days after the date of receipt to roll over the assets. Note that an indirect rollover is not an option for nonspouse IRA beneficiaries.
Are transfers and rollovers reported to the IRS?
Transfers are nonreportable transactions; they are not reported as IRA distributions on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., or as IRA contributions on Form 5498, IRA Contribution Information. A rollover, however, whether it is direct or indirect, is a reportable transaction. Distributions from the IRA or eligible retirement plan are reported on Form 1099-R, using the appropriate distribution code in Box 7, and deposits into the IRA are reported as rollover contributions in Box 2 on Form 5498.
How many transfers and rollovers can an individual do?
An individual can do an unlimited number of transfers, but can only do one IRA-to-IRA rollover in a 12-month period. This includes Traditional, Roth, and SIMPLE IRAs in aggregate. This rollover limitation does not apply to a rollover from an IRA to an eligible retirement plan or a rollover from an eligible retirement plan to an IRA.
Are there any age restrictions for an individual to complete a transfer or a rollover?
No, an individual can complete a transfer or a rollover at any age. But if an individual has to take a required minimum distribution (RMD) from his eligible retirement plan or IRA, then he cannot roll over his RMD to another eligible retirement plan or IRA. Conversely, the individual can transfer his Traditional IRA RMD or SIMPLE IRA RMD to another Traditional IRA or SIMPLE IRA and withdraw the RMD from the receiving IRA by the appropriate deadline.