Direct IRA transfers – also called IRA rollovers – are generally the preferred method for rollover money from one retirement account to another. If you’re performing a Simple IRA rollover that moves money from one account to another, you’ll want to request a direct transfer or rollover. The managers of both accounts will understand what you mean by this and can help you to successfully carry out the process.
After it has been open for a minimum of two years, funds from any Simple IRA plan can be rolled into most other types of IRAs; however, be aware that a Simple IRA can only receive a rollover from another Simple IRA. If you have questions about the type of IRA you have, take a look at your plan prospectus or talk with the person or organization through which you opened the account – usually, your employer’s human resources or benefits manager, or your own financial manager.
To set up a direct transfer, contact the manager of the new Simple IRA (also called the “target account”) and make sure that the new IRA is active and ready to receive the transfer. This may seem like a bit of a no-brainier, but it’s actually one of the most common mistakes that occur when initiating a Simple IRA rollover. The danger is that if the account isn’t ready, the money could be redirected back to you, which drastically changes the tax status of your money. This specific situation is what you’re trying to avoid when performing an IRA rollover.
Now, once you know that the target account is ready, inform the manager of this Simple IRA that you want to initiate a direct Simple IRA rollover. Be sure to use those exact words – “direct rollover” – as this begins a very specific financial process. The new manager will contact his or her counterpart at the old IRA and request that the funds be transferred directly into the new account. Each institution will have some paperwork that you’ll need to fill out detailing exactly how this transfer will occur, and the account managers will be able to guide you as you fill them out if you have any questions.
Once this paperwork is complete and you’ve requested your Simple IRA rollover, the manager of the Simple IRA will have the funds transferred to the new account by the most convenient means. This may be by check, wire transfer or whatever other financial tool the managers elect to use. The key is that you, as the account holder, never take possession of the funds. The funds, of course, remains your money, but it will only be handled by the IRA account managers. After a reasonable amount of time, contact the managers of the Simple IRA and your new account to make sure that the rollover is finalized and the new funds are where they’re supposed to be.
As a result of your Simple IRA rollover, there will be some paperwork that must be filed with the IRS, but the account managers will take care of this. Know that the IRS will consider a direct rollover to be a reportable event, but not as a taxable one. Taking money from one bucket, if you will, and moving it to another bucket maintains the tax-deferred status of your money, which is – after all – your goal in growing your retirement savings.