IRA withdrawal for purposes of a rollover

[stevenski]

I have an existing IRA that I wanted to use to fund a new IRA with a different trustee. Can I just transfer funds from the existing IRA to the new one and still keep the funds tax deferred? It's not a complete withdrawal, just a partial transfer of the funds.

I was under the assumption that as long as the funds go directly to the new trustee without me ever touching them, the transaction is not taxable.

[Bsch4477]

You can ask the financial institution holding your IRA to make the payment directly from your IRA to another IRA or to a retirement plan. No taxes will be withheld from your transfer amount.

[stevenski]

Thanks for the insight

[dmertz]

It's often best to initiate the transfer at the receiving IRA custodian rather than the original IRA custodian.  Doing so tends to make it more clear to both the receiving custodian and the original custodian that the transaction is a nonreportable trustee-to-trustee transfer and not a reportable distribution and rollover.  It also helps ensure that the funds end up in the right kind of account upon completion of the transfer.

Even if done as a distribution and rollover it would not be taxable (unless it was a violation of the one-rollover-per-12-months limitation, in which case it would be a failed rollover and excess contribution).  The reason to do it as a nonreportable trustee-to-trustee transfer is to avoid any involvement of the one-rollover-per-12-months limitation.  A trustee-to-trustee transfer is also the only permissible way to move some or all of an inherited IRA to another inherited IRA.

[Opus 17]

Yes, you can do this.  It would be a transfer if direct, and an indirect rollover if the first IRA sends you a check.  Either way, it is tax-free as long as the funds are deposited into another qualified IRA with 60 days.  And you don't have to roll over the entire account, partial is just fine. 

[dmertz]

If the original IRA custodian sends you a check for you to carry to the new custodian and the check is made out to the new custodian FBO the your IRA, the movement of the funds still constitutes a trustee-to-trustee transfer, not a distribution and not a rollover.

A trustee-to-trustee transfer is not subject to the 60-day rollover deadline (because it is not a rollover), but a delaying completing a trustee-to-trustee transfer that long makes no sense since you can't do anything else with the funds.