Make sure you know where you intend on moving your money in advance!
As you probably know, an individual retirement account requires that
you decide where your money is going to be invested in order to work
with the retirement account. Essentially this is called a "custodian"
for your investments. You should generally chose a safe custodian -
some of the most common ones are mutual funds, savings accounts, and
bonds. While you should definitely be careful as to which custodian you
choose for your retirement account, don't worry! You are not stuck with
the same investment until you retire.
However, unlike a normal investment, you should keep in mind that you
are only allowed to transfer or "roll over" your retirement account
once a year. Also, there are some very specific rules that you need to
follow. It is generally a good idea to find out how to transfer a
retirement account before you even begin to invest in one. That way if
you ever need to do a roll over in the future, you'll be ready.
First of all, you should probably have a good idea of where you want to
invest the money before you start the rollover process. The reason for
this is that after you take the money out of your original IRA
custodian, you'll only have 60 days to put it into the new custodian
fund. If you take too long, then you will be subject to a large penalty
tax - and penalties are definitely not worth the few extra days that
you take!
Something to keep in mind is that if you do a roll over, you will need
to report that at the end of the year. Just like anything else that is
involved with your finances, you should make sure that you keep track
of which custodians go with your individual retirement accounts and how
much money is in each account.
If you are going to do a smaller transfer from one existing IRA to
another, then it is possible that you won't even have to report your
transfer. These transfers are also tax-free. This is a good idea if you
do not want to change all of your money from one custodian to another,
but you think that it would be a good idea to change how much money you
have in each IRA.
