Significance

• Great care must be taken when changing the actual IRA from one custodial trustee to another. A change in IRA is either classified as a rollover or a transfer. The manner in which this change is made is important to the IRA owner. Penalties and taxes can apply if not handled correctly.
  
  

Custodial Trustees

• Custodians (or trustees) are titles assigned to an administrative firm or group that handles the reporting of retirement plan activity such as contributions and distributions to the IRS. They are required to follow strict guidelines. Many trustees are subsidiaries of an investment firm or company. Others are considered third-party custodians, and some of these allow greater flexibility with respect to the types of investments held in an account. An IRA account owner needs to act precisely when changing custodians.
  
  

IRA Transfer

• An IRA transfer is the simplest, most seamless way to change a custodian. An account owner will complete documents from a new custodian that authorizes the transfer. The new custodian then transmits this authorization for transfer to the former custodian. The transfer is typically completed in a few business days. In the event there are securities that cannot be transferred "in kind," instructions to liquidate those positions will be included or they will not be transferred. The account owner does not take possession of any proceeds, so no reporting to the IRS is required.
  
  

IRA Rollover

• Rollovers differ in that the account owner takes possession of the proceeds from the former custodian, usually in the form of a check or wire transfer into a separate account. Special attentions to proper procedures are essential. The owner is responsible for placing the proceeds into a new IRA in a timely manner. The former custodian will report the distribution and the new custodian will confirm the activity as a rollover.
  
  

Considerations

• The IRA owner has 60 days to complete a rollover. If not completed within 60 days, the change will not be permitted as a tax-free event. A penalty will apply and the proceeds become taxable income. In rare cases, however, a waiver from the IRS can be obtained if the delay can be attributed to an institutional error or other hardship. Company sponsored plans--such as a 401k or 403b--require similar attention when a change in trustee is being made. Additionally, only one rollover per year is allowed whereas there is no limit on transfers.
  
  As always, seek the advice of tax and financial professionals.