How to Transfer an IRA from One Bank to Another

This article was co-authored by Gina D'Amore. Gina D'Amore is a Financial Accountant and the Founder of Love's Accounting. With 12 years of experience, Gina specializes in working with smaller companies in every area of accounting, including economics and human resources. She holds a Bachelor's Degree in Economics from Manhattanville College and a Bookkeeping Certificate from MiraCosta College.

There are 11 references cited in this article, which can be found at the bottom of the page.

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You might want to transfer an IRA if you find a bank with more attractive rates, want to consolidate your finances, or if your broker switches firms. While making a transfer involves some attention to detail, it’s a relatively simple process. Open an IRA account with your new bank, fill out a transfer instruction form, then allow 3 to 5 business days to complete the transfer. If you’re converting a traditional IRA to a Roth IRA, you’ll need to take a few extra steps to manage your tax liability.

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Opening a New IRA

If you currently hold a Roth IRA, you’ll need to open a Roth IRA with your new bank. You can’t transfer or roll over a Roth IRA to a traditional IRA. [2] X Trustworthy Source Internal Revenue Service U.S. government agency in charge of managing the Federal Tax Code Go to source
If you currently have a traditional IRA, opening a traditional IRA with the new bank is probably your best option, especially if you’re in a higher tax bracket or close to retirement. Contributions to a traditional IRA aren’t taxed. You’ll pay taxes on distributions you collect from the account after you retire, and you’ll likely fall into a lower tax bracket during retirement.
If you’re in a low tax bracket and expect to pay higher taxes later in life or during retirement, it might be best to open a new Roth IRA. Your contributions to a Roth IRA will be taxed at your current, low tax rate. You won’t have to pay taxes on distributions you collect during retirement when you might have a higher tax rate.
Keep in mind you’ll need to pay taxes if you transfer untaxed funds from a traditional IRA to a Roth IRA. If your tax rate is currently under 20 percent, but you expect to pay 25 percent during retirement, paying taxes on a Roth conversion might save money in the long run. [3] X Trustworthy Source Internal Revenue Service U.S. government agency in charge of managing the Federal Tax Code Go to source

Some banks also match contributions for a limited period (such as the first 3 years) or offer other incentives. Make sure these incentives won’t be canceled out by high portfolio management fees.
Paying higher ongoing fees by even a fraction of a percent can cost thousands over the life of your IRA. [5] X Trustworthy Source U.S. Securities and Exchange Commission Independent U.S. government agency responsible for regulating the securities industry, which includes stocks and options exchanges Go to source
It's also important to check the minimum investment needed before deciding on a financial institution.

For instance, a new bank might offer lower portfolio management costs that, in the long-term, will justify paying transfer fees.

Non-transferable assets might include securities sold only by your old firm or mutual funds not available at a new firm.
If you have a sizable non-transferable asset, liquidating it might push you into a higher tax bracket, and leaving it in an inactive account could be an unreasonable expense. If necessary, you should reconsider making the transfer or try to find a firm that can facilitate the transfer.

Ask them why they’re moving to a new firm and if they receive any compensation for convincing you to transfer accounts. Discuss rates, fees, and other financial incentives to make the switch. Don’t forget to verify that your assets are transferable.

You can’t start a direct transfer without first opening an account with a new firm.

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Making a Direct Transfer

If you roll over funds, your old bank sends you a check, and you’ll have 60 days to deposit the funds into a new IRA. If you don’t deposit the money on time, you’ll have to report the entire sum as taxable income and, if you’re under 59 1/2 years old, you’ll incur an additional 10 percent penalty.

For example, your new bank might have broader investment options with higher annual returns and lower or no transaction fees.
Keep in mind you need to transfer the old IRA in full in order to avoid tax liability. You can’t withdraw cash from the old IRA, transfer the remaining sum, use the withdrawn funds to purchase new assets, then deposit those new assets into your new IRA account. You would need to pay taxes on those withdrawn funds based on your current tax bracket, plus applicable penalties. [12] X Research source

If you’re going through a divorce, you might need to transfer part of an IRA to a new account in your name or in your former spouse’s name. If so, specify the transfer amount you or your former spouse is entitled to instead of the IRA’s total value. [14] X Trustworthy Source Internal Revenue Service U.S. government agency in charge of managing the Federal Tax Code Go to source

The transfer process should take 3 to 5 business days. During that time, call both banks periodically to check your progress.
The transfer can only be rejected if your assets aren’t transferable or aren’t in compliance with your new firm’s policies. If you verified that your assets are transferable beforehand, you shouldn’t run into any difficulties.

If you see any discrepancies, call your old and new banks for an explanation. If necessary, contact the compliance directors of both banks. If they don’t provide a satisfactory answer, contact the Securities and Exchange Commission at https://www.sec.gov/.

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Managing a Roth Conversion

If your contributions to your traditional IRA were deducted from your paycheck as pre-tax income, they weren’t taxed. When you transfer your traditional IRA to a Roth IRA, you’ll need to pay taxes on those funds based on your current tax bracket.
Never withdraw money from your traditional IRA to cover your tax liability. The money you use from the old IRA to pay your tax liability would be counted as ordinary income, which would further increase your incurred taxes.

If your old bank has to send you a check, make sure you deposit the funds into your new Roth IRA within 60 days. Any funds from the traditional IRA not deposited into the Roth IRA will incur additional taxes and penalties. [19] X Trustworthy Source Internal Revenue Service U.S. government agency in charge of managing the Federal Tax Code Go to source

You may be required to start paying estimated taxes in advance at the time of the conversion. [21] X Trustworthy Source Internal Revenue Service U.S. government agency in charge of managing the Federal Tax Code Go to source

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