Transferring your IRAs
You just found out that your maturing IRA CD is only offering a1.00% to keep it at the bank. You discovered another bank offering a 15-month IRA CD at 2.00%. How can you successfully transfer your IRA.
IRAs can be transferred one of two ways. One is to get physical possession of the money and send it yourself to the new bank. The other method is doing what is called a Trustee-to-Trustee tranfer. There are negatives and positives with each method.
Method one:
The first method involves having the bank where your CD is coming due send you the money. Most banks mail you a check, but some will wire. Although method one generally takes less time, a few problems can occur. First, the sending bank could hold back a portion, sometimes up to 20%, incase taxes end up being owed. Second, when you take this path, the money has to be re-invested into a new IRA within 60-days and you can only do it once a year. This isn’t usually a problem when you have a new IRA already set-up and waiting, but the once a year limit can pose serious problems, especially for people that have multiple IRA CDs. When the money isn’t re-invested you will at the least have to pay taxes on the amount and depending on your age there may also be penalties (if you are under 59 1/2, for example). And eventhough it is rare, you may find yourself in a position where you have to prove you did the transfers right. That process can prove lengthy with having to file forms with the IRS.
Method two:
It may take longer, but method two is really the better choice. The method is known as a direct rollover or trustee-to-trustee transfer. The current IRA trustee sends the funds directly to the new trustee. This is the safest route to avoid the potential problems of the above, but it isn’t without faults. First, this method could take a month depending on the requirements of the current trustee. The most common process is to complete a transfer from from the new trustee. The form often needs to be notorized or gold medallion signature guarnateed. Anyone that is a licensed notary can handle the notary, but usually only another financial institution can do the gold medallion. Those services usually cost around $20 per signature. Once that is done you mail the form to the new trustee. They sign the form and add the delivery instructions. Next, the new trustee mails the form to the current one. Finally, the current trustee mails or wires the funds. This method keeps you from taking possession of the funds. You don’t have to worry about a taxable event being created and you can do it as often as you like. You do have to predetermine where you want the funds sent and the new institutions needs to be able to give you some time to get them the funds.
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About the Author:
Chris Duncan is a FINRA Registered Representative. He specializes in helping clients find the best CD rates nationwide. His clients include individuals, financial institutions, corporations, and public agencies.
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