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Tutorial: Roth IRA Rollovers and Transfers

 

 

In addition to regular contributions and conversions, Roth IRAs can be funded via transfers and rollovers. This section explains the rollover and transfer rules that apply to Roth IRAs.

 

Transfers
A trustee-to-trustee-transfer can occur between two Roth IRAs. There is no limit on the number of times such transfers can occur during any period.
When completing a trustee-to-trustee-transfer, the Roth IRA owner should contact the receiving custodian and have them initiate the transfer so as to reduce the chances of errors occurring. The receiving custodian will generally have the Roth IRA owner complete paperwork to indicate whether the assets must be transferred in-kind, or if non-cash assets must be liquidated and then transferred.
A transfer is a non-reportable and nontaxable transaction
Rollovers
Between Roth IRAs
A rollover between two Roth IRAs occurs when the Roth IRA owner takes a distribution from one Roth IRA and does a rollover of the amount (or a portion of it) to another Roth IRA as a rollover contribution.  Such a rollover is subject to the following rules:
o   The same property that was distributed must be rolled over
o   The rollover must be completed within 60-days of the Roth IRA owner receiving the distribution
o   A Roth IRA cannot be involved in a rollover more than once during a 12-month period.
Rollovers between Roth IRAs are reportable, but are nontaxable.
From a Traditional IRA, SEP IRA or SIMPLE IRA to a Roth IRA
A rollover from a traditional IRA, SEP IRA or SIMPLE IRA to a Roth IRA is considered a Roth IRA conversion. The credit to the Roth IRA should be treated as a ‘conversion’ for tax reporting purposes, and not as a regular rollover contribution.
For conversions done before January 1, 2010, the Roth IRA owner must meet the following two requirements:
o   Have a modified adjusted gross income (MAGI) or $100,000 or less, and
o   Tax filing status must not be married-filing-separately
These limitations are repealed for conversions that occur January 1, 2010 and after.
Conversions are reportable and (except for amounts representing after-tax amounts) are taxable to the Roth IRA owner for the year the conversion occurs.
There are no limits on the number of times these conversions can occur during any given period. However, in the case of a reconversion, there is a restriction on the time period within which it can occur. For an explanation of these restrictions, see Tutorial: Roth IRA Reconversions.
For more on the Roth IRA conversion rules, see Tutorial: Roth IRA Conversions.
From a qualified plan, 403(b), 403(a) or governmental 457(b) plan
A rollover from a qualified plan, 403(b) , 403(a) or governmental 457 (b) plans is considered a qualified rollover contribution or Roth conversion. These can be done as direct conversions or indirect conversions.  Similar to conversions from traditional IRAs, SEP IRAs and SIMPLE IRAs, the Roth IRA owner is subject to MAGI and tax-filing status limitations, which are repealed effective January 1, 2010.
The individual must be eligible to make withdrawals from these plans in order for the rollover/conversion to occur and the amount must be rollover eligible in order to be credited to the Roth IRA.
If the conversion is done as an indirect conversion, the amount must be credited to the Roth IRA within 60-days of the Roth IRA owner receiving the assets.
There is no limit on the number of times these transactions can occur
From a Designated Roth Account
A rollover from a designated Roth Account (DRA)- also know as Roth 401(k)s and Roth 403(b)s, can be made to a Roth IRA, providing the Roth IRA owner is eligible to make withdrawals from the DRA. Similar to rollovers from qualified plans, there is no limit on the number of times a rollover can occur from a DRA to a Roth IRA.
From Roth IRAs to Other Types of Retirement Plans
Assets cannot be rolled-over or transferred from a Roth IRA to any other type of retirement plan. The only permitted movement of funds/assets from a Roth IRA to another type of retirement plan are recharacterizations. These are:
  • A recharacterization of an IRA contribution from a Roth IRA to a traditional IRA
  • A recharacterization of a Roth conversion that was made from a traditional IRA, SEP IRA or SIMPLE IRA
  • A recharacterization of a Roth conversion that was made from a qualified plan, 403(b) account, 403(a) annuity, or governmental 457(b) plan
 
                    I.            Tutorial: Roth IRA Contributions
                  II.            Tutorial: Excess Roth IRA Contributions
                III.            Tutorial: Roth IRA Conversions
               IV.            Tutorial: Roth IRA Reconversions
                 V.            Tutorial: Roth IRA Rollovers and Transfers