Rolling over an IRA?

[dajoga]

Does that mean changing your IRA in one fund into another IRA fund?
I have an IRA mutual fund which isn't doing that well compared to another fund I have so I'm thinking of changing it to the better fund. Just want to get my definitions straight. Any advise?

[Jeffrho]

[ QUOTE ]
Does that mean changing your IRA in one fund into another IRA fund?
I have an IRA mutual fund which isn't doing that well compared to another fund I have so I'm thinking of changing it to the better fund. Just want to get my definitions straight. Any advise?


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A Rollover IRA is an IRA you can use to put funds from an employer-provided retirement plan (401K, etc) when you change jobs. Your employer's HR department or retirement plan administrator usually have forms you need to fill out to transfer your assets from the company's retirement plan into your Rollover IRA.

Your IRA can contain cash and securities such as stocks, bonds and mutual-funds. If you have shares in a mutual fund that's in your IRA, you can sell those shares and use the proceeds to purchase other securities within your IRA. As long as the proceeds from the sale stay within the IRA, they remain tax-defered.

[dajoga]

In other words, my IRA is not the same as the MF that's in it? So I can have more than one MF in my IRA? If so, can I put more than the max into these funds, but only the max is tax-defered? Ex. if I have five MF's and two are in my IRA but one of them is really doing well, all things being equal, I should put as much as I could into the one doing well? That seems reasonable, but maybe not. I'm no investment wiz.

[Jeffrho]

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dgauw said:
In other words, my IRA is not the same as the MF that's in it? So I can have more than one MF in my IRA?

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Think of an IRA as a "container" for securities - an IRA is composed of many securities. For example in my IRA I have shares in 8 different MF's, stock in 5 different companies, and several government bonds. You can build your portfolio as you see fit.

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If so, can I put more than the max into these funds, but only the max is tax-defered?

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The entire value of your IRA is tax-defered. I think you are confusing the maximum contribution amounts with the tax-defered status of an IRA. The maximum amount of cash you can contribute into your IRA is $3,000 per year. I think those are going to change soon though. This is not the same as growth from your investments - there is no maximum on how much your investments can grow in value.

[ QUOTE ]
Ex. if I have five MF's and two are in my IRA but one of them is really doing well, all things being equal, I should put as much as I could into the one doing well? That seems reasonable, but maybe not. I'm no investment wiz.

[/ QUOTE ]
Depends on various factors such as your time frame for retirement (short-term VS long-term), the historical performance of the fund, etc. I'd hit a few financial sites like fidelity.com or schawb.com and do a little research on IRA's. Those sites usually have some good articles and even video presentations explaining how IRA's work.

[Timberwolf]

In fact, you may be able to merely transfer all the assets from one custodian (your company's 401k) to another custodian (UBS, Charles Schwab, Merril Lynch, etc)...I'm not sure that you'd actually have to sell off anything to transfer the holdings.

As Jeffrho has pointed out, you can have numerous holdings within your IRA. In fact, it is recommended that you HAVE more than just one MF...diversification is absolutely imperative for preserving your capital while insuring optimum return on your investment(s). In my IRA, I have 8 MF (soon to be 10) and stock in one company.

[dajoga]

TW--I don't have any company 401k. My IRA only has one MF and it's with Fidelity. Does that make them my "custodian?" What if I want to add a MF from say, T.Rowe?

[Estragon]

You can change the custodian and transfer the assets to another anytime you want.

You can sell the securities or other valuables in the IRA and buy others any time you want to, if you choose a custodian who will accomodate this.

You only risk tax liability when you take the funds out, and fail to deposit them in another qualified account within a prescribed time, depending on the circumstances. I think you always have 60 days to "roll over" the funds. If the funds were in a 401 (k) or other company or employer retirement fund and you leave that employer and withdraw them, you have 180 days to put them in a new fund.

Your money in the funds was exempted from taxes when you put it in an IRA, so any you take out without depositing into another qualified fund within the time limit is subject to taxation, and a penalty for early withdrawal unless you meet the withdrawal age requirements {which I think is age 59 and 6 months}.

BUT ~ if you keep the money in a qualified custodial account, you can put it into almost any investment: MF, stocks, bonds, diamonds, collectibles, real estate, etc. You can switch investments as often as your custodian permits. You only pay taxes and penalties if you take money out of it.

[Timberwolf]

Thanks for that Esty...you expained it perfectly.

One thing though...I didn't think one could hold bullion or diamonds or any commodity...has that changed or was I given bad info?

[Estragon]

Bullion, diamonds, baseball cards. The only restriction on investments other than cash, bonds, or equities is that the custodian must provide or arrange for insured storage, which adds another fee.

The beauty of the self-directed retirement is that while the government limits the amount of contributions that get tax benefits and controls the rules of withdrawals, you can put your money into almost anything you like. Not every custodial agency will accept every form of investment, though, so it pays to shop around if you want to use uncommon investment vehicles.

[EagleTed]

Well done, Estragon. I see I haven't been missed, lol.

[dajoga]

Maybe I missed something, but where are these "custodians?" Are there more than investment places i.e. Edward Jones, financial consultants, etc.? Do banks do this? Can you do it yourself? I'm about as whippy in this area as I am computers. LOL

[Timberwolf]

Almost all the brokerage houses - i.e. Charles Schwab, Merril Lynch, UBS (Paine Webber), Piper Jaffray, Edward Jones - are custodians. You can have your bank hold CDs as an IRA. Even the online brokerages - i.e. Ameritrade, E-trade, etal - are custodians...a custodian is any institution that is recognized to hold your account.

[Naturalized-Texan]

You can rollover any IRA to another IRA. Usually, if you change custodians, you must roll over cash, not securities, meaning that you must sell all the securities in the IRA before you can roll it over.

The best way to roll over an IRA is via a custodian to custodian transfer rather an receiving a check from one custodian and turning that check over to the new custodian. If you receive a check, the custodian must withhold taxes. That means that you must make up the ampunt of that withholding from your own funds when you deposit the money in the new IRA, or the amount withheld becomes taxable income. In other words, you must rollover the entire amount that was in your old IRA to avoid paying taxes.

BTW, after I retired, I worked 10 years as a tax preparer, including 8 years as a tax instructor, and 6 years as a tax office supervisor. If you have any questions, I'll try to answer them. I still have a lot of tax reference books and I keep current every year even though I no longer prepare taxes except for my family.