How to Do a Direct IRA Transfer
If this is your first direct IRA transfer, don’t worry. We help process direct IRA transfers every day, and we’re here to make it as easy for you as possible.
TABLE OF CONTENTS
A direct transfer moves qualified assets directly from one provider to another.
No tax consequences: Direct transfers are not counted as distributions or taxable income, therefore they are not subject to any taxes or penalties.
No limit: The IRS says you can do as many of these per year as you want.
How to Initiate a Direct IRA Transfer
If you’re like most of our customers, you want your IRA moved quickly and efficiently, with as little paperwork as possible.
Not every account is eligible to be moved into Betterment using the same direct transfer method, so let’s start with the fastest way to move an IRA to Betterment, and then we’ll go through other options until we find the fastest method your account qualifies for.
Option 1: Transfer Shares In-Kind via ACATS
ACATS transfers are like a hare—quick and nimble.
ACATS, which stands for (Automated Customer Account Transfer Service), is the easiest way to move investments between accounts at different institutions. It’s also the fastest way to do a direct transfer of your IRA. ACATS transfers shares electronically, and if you’re moving the entire account balance, there is no paperwork required. The entire process take about 5 to 7 business days to fully complete.
The reason it’s so fast is that your old provider is required to acknowledge the ACATS request, and act on it in a timely manner, unless there is a valid reason for rejection.
To find out if your account is eligible for an ACATS transfer, sync it to your Betterment account and click the blue “Start a Rollover” prompt that appears underneath the account. If your account is eligible for ACATS, you’ll be able to quickly move through the rollover flow and submit your request right through the website—with no paperwork whatsoever.
If your account is not eligible for an ACATS transfer, we will direct you to the next fastest option automatically.
Option 2: We’ll send paperwork to your old provider electronically, and they’ll mail us a check.
This is the fastest option for a direct transfer if your account is not ACATS eligible. There is just one page of paperwork that you can sign with your mouse right on our website.
After syncing the account you want to roll over, click on the “Start a Rollover” prompt. We’ll ask you a few questions which should only take you a few minutes to answer. After you sign your request online with your mouse, we’ll automatically fax the request to your current provider to process.
The check usually arrives within 7 to 10 business days. Once we receive your rollover check, we’ll invest your funds within 1 to 2 business days. You’ll receive an email notification once your funds have been invested.
Option 3: You’ll sign and mail paperwork to your old provider, and they’ll mail us a check.
This option is like a tortoise. It’s slow and steady, but still ultimately wins the race.
This process takes longer than the first two options due to mailing time. It still counts as a direct transfer, which means it won’t result in any tax consequences. Any IRA will qualify for this type of transfer method. In rare cases, you may run into barriers transferring out of your current provider, even with this method. If this is the case, you may want to consider an indirect rollover.
After syncing the account you want to roll over, click on the “Start a Rollover” prompt. We’ll ask you a few questions which should only take you a few minutes to answer. Print the IRA transfer form that’s automatically created for you. You’ll need to sign the form, and your current provider may also require a notary or a medallion signature guarantee. Mail the completed paperwork to your current provider, using the address we provide to you on the paperwork.
Our IRA transfer form contains instructions for your current institution to liquidate your assets before writing the direct transfer check to Betterment. However, it’s a good practice to call your old provider before you mail the form, to verbally request liquidation of your assets, as there may be higher fees if your provider liquidates your account based on our written instructions. You might also be able to liquidate the account yourself on their website, which may be an even cheaper option for liquidation.
The entire process usually takes roughly 3 to 4 weeks, due to mail time. Once we receive your rollover check, we’ll invest your funds within 1 to 2 business days. You’ll receive an email notification once your funds have been invested.
They’re like a rhinoceros—fast and powerful—though potentially dangerous in the wrong circumstances.
An indirect rollover is when you withdraw from your old IRA and take personal possession of the funds, and then redeposit them into your new IRA within 60 days. The IRS limits you to one indirect rollover in any 365-day period.
Pros: This can be the fastest process of all, involve little effort, and prevent delays due to institutional requirements.
Cons: If the funds are outside of a qualified account for more than 60 days, the withdrawal may be counted as an early distribution and be subject to hefty tax penalties. Because of the IRS’s one-per-year limit, you could also run into a tax penalty if you’ve done an indirect rollover within the last 365 days. You can also check out Publication 590-B, the IRS guide to IRA distributions.
Note: If your indirect rollover is over $300,000, you must send us the cash via a wire transfer rather than a regular ACH deposit from your linked bank account. Wire transfer instructions into your IRA can be found in the Transfers section of your Betterment account. These wire instructions in your account are only for new deposits from your bank account, or for indirect rollovers. Do not generate wire instructions for direct IRA transfers. Your previous IRA provider will send us a check directly. If they can only wire funds, reach out to our support team at firstname.lastname@example.org for the correct wire instructions.
Less Common Special Cases
These odd ducklings aren’t as common, but in most cases, we can still help.
If you have an inherited account, we’ll need more information from you so that we can set up the specialty account for you. Please email email@example.com with the following information:
- Name of current provider.
- Type of IRA (Traditional or Roth).
- The IRA account number at the current provider.
- Indicate “full” or partial transfer. Provide the exact dollar amount to transfer if partial.
- Name of original IRA account holder.
- Since we will need to open a new legal account type, please review our Customer Agreement and send us the statement, “I agree to the terms and conditions of the Customer Agreement, and I give Betterment permission to open an inherited IRA account on my behalf.”
SEP IRAs can be rolled into a Traditional IRA or SEP IRA. Click here for more information on SEP IRAs.
You can roll over a SIMPLE IRA, although your first contribution to that SIMPLE IRA must have been made at least two years prior to the date that you’d like to transfer it. SIMPLE IRAs can be rolled into a Traditional IRA or SEP IRA.
- Direct transfer: Direct transfers refer to moving assets or cash in a qualified account at one institution to another qualified account at a different institution. A direct transfer could involve moving between like account types, or different account types.
- Trustee-to trustee transfer: A direct transfer specifically transferring funds from an IRA at one custodian to an IRA at a new custodian.
- Qualified account: A qualified account is an account that qualifies for certain tax-sheltered treatment per the IRS. These accounts are generally used to save for retirement, and the IRS uses these tax-sheltered treatments as incentives for individuals to save for retirement.
- Examples of account types that are qualified accounts include the following: IRAs (Roth, Traditional, SEP, SIMPLE), 401(k)s, 403(b)s, 457(b)s, Thrift Savings Plans (TSPs), and pension plans. Roth 401(k)s, Roth 403(b)s, Roth 457(b)s, and Roth TSPs are also included.
- In-kind transfer: Moving investments between custodians, rather than liquidating them first to move them as cash.
- Liquidate: Liquidating means selling securities, or the shares you own, to get back cash for them. If you own shares, your IRA provider can’t write you a rollover check—they have to sell your shares first to obtain the cash.
- ACATS: ACATS stands for Automated Customer Account Transfer Service. This process transfers assets or cash electronically between brokerage firms. To learn more about ACATS, click here.
- Notary: A notary is a public official appointed by your state’s government that verifies your identity before you sign a document, and bears witness while you sign the document. They then provide their own stamp and signature on the same document. You can generally have a document notarized at a bank, a UPS store, or a local government office.
- Medallion Signature Guarantee (MSG): An MSG is similar to a notary, but it’s specifically from a financial institution such as a bank, credit union, or broker. You may be able to receive a MSG from the institution you are transferring out of, or from your personal bank. We recommend calling ahead to your bank branch to ensure they can provide an MSG.
Please note that since we are not registered tax advisors, we cannot give specific tax advice. For the best information to your individual circumstances, please consult a qualified tax professional.
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