How to Transfer a Roth IRA

If you have a Roth IRA and want to transfer your account to a new custodian, taxes and penalties can be avoided if you follow some relatively simple rules. To start, don't close out your old account before finding and making arrangements with a new custodian. That would result in receiving a distribution and could subject you to those taxes and penalties, particularly if you are younger than age 59½ or the Roth account has not been open for five years or more.

Among the options to accomplish the switch from one Roth account to a new one is by a direct transfer, which is the safest way.

Direct Transfer

In a direct transfer, the current Roth IRA custodian, which is your financial institution, transfers some or all of the money in the account directly to a Roth IRA at another custodian. A direct transfer, also called a trustee-to-trustee transfer, is not subject to taxes or penalties.

You can transfer a Roth IRA from one provider to another without any costs. It is crucial to transfer the Roth IRA money to another Roth IRA, not to a traditional IRA or some other type of account. In general, it is usually best to have the receiving custodian initiate the transfer. You can ask your current financial institution to make the payment directly to the new Roth IRA.

The type of assets held in a Roth will also affect the process. The receiving custodian will typically ask you to indicate whether the assets should be transferred in-kind or, if non-cash assets, liquidated and then transferred. For example, proprietary investments, such as proprietary mutual funds, held in your old Roth account cannot be transferred to the new financial institution. Shares in such funds will need to be liquidated and the proceeds reinvested once they are transferred to the new Roth IRA.

Most financial institutions use the Automated Customer Account Transfer Service (ACATS) electronic system to transfer money between accounts. That generally takes about a week.

Distribution to the Account Holder

Another option—albeit a riskier one—is to ask for a check from your existing custodian, but this makes it your responsibility to deposit the money into a new Roth account. In this scenario, the Roth IRA custodian liquidates the assets and either mails a check made out to you or deposits the funds directly into your personal bank or brokerage account.

In order to be considered a tax-free rollover to a new Roth IRA, the money must be deposited in that Roth IRA account within 60 days after you receive the funds. If the 60-day deadline is missed, the withdrawal will be considered a distribution of the assets, and some of it may be subject to income tax as well as a 10% early withdrawal penalty.

Roth contributions can be withdrawn penalty- and tax-free at any time, but their earnings are tax-free only under certain conditions. For example, the withdrawal must be made at least five years after the Roth account was first opened, and the owner must be at least age 59½.

If you do decide to do it yourself, make sure to document the process. If the IRS questions the transfer and you can’t prove you deposited the money in your new Roth IRA within 60 days, you'll get stuck paying taxes and penalties on it.

The Bottom Line

It's possible to move your money from one Roth IRA custodian to another. As long as the money goes into another Roth account and no distribution is made to you, the transfer won't be subject to taxes or penalties. It's best to do it through a direct transfer to the new custodian, so you won't risk missing the 60-day deadline.