How to Roll Over Your IRA in 2023 Without Penalty

An IRA rollover allows you to move funds from one Individual Retirement Account (IRA) to another IRA without tax penalties or hassles. With some planning and careful attention to the rules, rolling over your IRA in 2023 can be straightforward. Here is a step-by-step guide to help you complete an IRA rollover properly and avoid potential penalties.

Choose Between a Direct or Indirect Rollover

The first decision is whether to do a direct or indirect Precious Metals IRA rollover. With a direct rollover, the distribution check is made payable to your new IRA custodian, and the funds are directly transferred. You never take possession of the money. An indirect rollover involves you receiving a check made out to you and then depositing it into the new account within 60 days.

A direct rollover is usually preferable because there is no risk of missing the 60-day window. Consult with your current custodian to see if they offer direct rollovers. If not, an indirect rollover works fine as long as you complete all steps properly.

Select Your New IRA Custodian

Research and select the financial institution you want to be the new custodian of your IRA. Look for providers that offer the investment options you want at competitive fees. IRA rollover specialists at institutions can assist you with this process and help facilitate the paperwork.

Before initiating the rollover, complete an IRA account application with the new custodian so the account is already opened and ready to accept the incoming funds.

Know the One Rollover Per Year Rule

According to IRS rules, you can only do one 60-day IRA-to-IRA rollover over a 365 day period. This applies across all your IRAs cumulatively. If you already completed a rollover within the past year, you’ll need to do a direct transfer or wait until the 365 period has passed before attempting another rollover.

Rolling over inherited IRAs or eligible employer plan funds into an IRA does not count towards this once per year limit. But multiple IRA-to-IRA rollovers in one year will result in taxes and penalties on the second rollover.

Initiate the Process and Complete Paperwork

Contact your current IRA custodian to begin the process. There will likely be some paperwork to fill out, including an IRA distribution form. Be sure to specify this is for purposes of completing an IRA rollover, not just taking a distribution. Indicate how much you want to roll over and provide your new custodian account information.

You may need to choose between a check made out to you or directly to the new custodian. Reconfirm the new custodian account details are correct before submitting the paperwork.

Deposit the Funds Within 60 Days

Once you receive the check, you must deposit the full amount into the new IRA within 60 days. With direct rollovers, the custodians transfer the funds for you. But indirect rollovers require you to deposit the check. If taxes were withheld, you’ll need to make up the difference from other sources when making the deposit.

If you miss the 60-day deadline, the full amount of the rollover becomes taxable income. The IRS does allow a one-time waiver of the deadline through a self-certification procedure if you meet certain qualifying criteria.

Report the Rollover on Your Tax Return

You must report your IRA rollover on IRS Form 8606 as part of filing your federal tax return. This shows the IRS you properly completed the rollover so it remains tax-free. Failure to report the rollover could potentially result in penalties.

Avoiding Potential Rollover Pitfalls

While IRA rollovers sound straightforward, some common pitfalls can quickly trigger taxes and penalties:

• Missing the 60-day deadline to deposit a check into the new IRA is one of the biggest mistakes. Set calendar reminders and leave yourself a cushion.
• Cashing out the check will invalidate the tax-free treatment instead of depositing into the new account.
• Attempting more than one IRA rollover within a single 365-day window. This violates the one rollover rule.
• Forgetting to report the rollover to the IRS on your tax return via Form 8606.
• Rolling inherited IRA funds into your own IRA rather than a new inherited IRA account.

Consult with a tax advisor or IRA specialist if you have any doubts before initiating an IRA rollover. A qualified professional can help steer you clear of costly mistakes.

The Bottom Line

With proper planning and following IRS rules, you can complete an IRA rollover in 2023 without headaches or triggering taxes and penalties accidentally. Know the one rollover per year limitation, watch the 60-day deadline closely, deposit the full check amount, and report the rollover on your tax return. Paying attention to the details will keep your retirement funds protected.