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First: I am familiar with the Roth IRA rules around withdrawing your contributions and the ramifications of that, so no questions there.

I'm moving my Roth IRA between brokerages. I have a letter but my brokerage requires I physically mail it to them, cut a check, etc etc. It could take weeks.

I'd like to just withdraw the funds to my bank account from the old brokerage and then deposit them into the new brokerage Roth IRA so it doesn't take weeks. Is there a way to do this without incurring tax penalties? I don't want this to be seen as a contribution to the new account or a withdraw of the gains on the old account - it needs to be seen as a transfer in the eyes of the IRS.

Edit: I'm also familiar with the "60 day" rule of withdrawing and returning funds. What I'm unsure of is if you do this between different brokerages will it still be considered the same funds and retain its age, etc?

  • What do you mean by "retain its age"? What difference does that make? – D Stanley Apr 7 '17 at 14:29
  • Certain rules apply to contributions and accounts with regard to being able to make principle withdrawals (how I understand it) that go away after a certain period of time. – jimmy0x52 Apr 7 '17 at 16:44
  • According to this the age of the 401(k) is not considered when you roll it to an IRA. The age of your Roth IRA will be based on your first contribution to a Roth IRA. – D Stanley Apr 7 '17 at 17:13
  • I always used an electronic direct transfer, and between the large providers, it arrives next day. Maybe the brokerage you are using is the issue. – Aganju Apr 7 '17 at 17:17
  • If you do not want taxes to be withheld (on the earnings) from the distribution, you may need to do a direct rollover, instead of cutting a check for you to deposit in your own bank account. This link indicates you might be okay with a Roth, but personally I'd want to play it safe. irs.gov/retirement-plans/plan-participant-employee/… – Ogre Psalm33 Apr 7 '17 at 17:59
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What you are describing in an indirect transfer, as opposed to a direct transfer.

It could take weeks.

I have done direct transfers from Traditional 401(k)s four times, and it has taken less than a week each time. For three of them I was mailed a check made out to the destination brokerage and sent it via certified mail to get deposited. One transfer was handled by my HR department since I was transferring to a 401K0) (which I wouldn't do again). It is a bit nerve-racking to mail very large checks, but I have not had any problems, and I made sure to keep photocopies of the check.

I suspect that you'll have 3-day (roughly) waiting periods for both the withdrawal and the deposit if you do an indirect rollover (whether electronic or paper mail).

Is there a way to do this without incurring tax penalties?

Yes it can be done, but it is more work for you, has significant tax risk, and you can only do one indirect transfer (regardless of type) in any 12-month period. There is no limit to the number of direct IRA to IRA rollovers you can do. I believe there's also additional paperwork required when you file your taxes, but since I haven't done an indirect rollover I can't say for certain what that burden is.

You will need to contact both brokerages and make sure that they are very clear what you are doing (regardless if its a direct or indirect rollover) to get all of the necessary steps. The receiving trustee might have some specific requirements that you'll need to adhere to when making the withdrawal request.

  • Generally even though the check is mailed to you, you want to have it made out to the new IRA custodian that way they don't hold any money back for taxes. – mhoran_psprep Apr 7 '17 at 15:22
  • This sounds painful enough to just wait for the postal mail. I hate that it's 2017 and I still have to physically mail a piece of paper. Thanks for the thorough answer. – jimmy0x52 Apr 7 '17 at 15:25
  • @mhoran_psprep Some brokerages can do it electronically, but yes if they mail you a check it will likely need to be made out to the receiving brokerage (and likely need the destination account number as well). That's why I say to contact both brokerages to get all of the requirements on both sides. – D Stanley Apr 7 '17 at 15:25
  • Just be aware of the recent (2015, I think) Tax Court decision that made indirect transfers more dangerous if you're not careful. You can now only do ONE indirect transfer per (IIRC) rolling 12-month period. Not one per account. Not one per kind of IRA. ONE. If you do an additional one it will be an invalid transfer and you'd better put the money back where it came from within 60 days. All the more reason to do a trustee-to-trustee transfer. – QuantumMechanic Apr 7 '17 at 20:01
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    Here's a cite on the new rule, btw: irs.gov/retirement-plans/ira-one-rollover-per-year-rule And it looks like it's harsher than I remembered. You can't even put the money back if you take a 2nd distribution, by my reading of that document! – QuantumMechanic Apr 7 '17 at 20:07

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