IRA transfers: Trust your trustees

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A U.S. Tax Court ruling in April 2014 restricts how often that you can move funds between an individual retirement account (IRA) and similar accounts. Under the ruling, you can do this only once during any 12-month period without consequences. If you exceed that, you’ll be subject to income tax and a 10 percent early-withdrawal penalty on the amount that you transfer.

The ruling, which takes effect in January 2015, also applies if you transfer money to an IRA from an employer pension plan or 401(k).

To avoid this, you should contact the trustee of your current retirement-savings plan as well as the trustee of the plan that will receive the funds and let them handle it, says Mark Steber, who is a senior vice president and the chief tax officer for tax preparer Jackson Hewitt. The restriction on the number of transfers doesn’t apply if the move is made between trustees. According to major brokerage firms, trustee-to-trustee transfers, which also are called direct rollovers, incur no fees. The process takes between 1 week and 2 months, depending on trustees’ response time.