IRA Partial Rollover Rules

IRA Partial Rollover Rules
Partial IRA rollover rules depend on the type of account.

Transfer Methods

You have three options for completing a partial rollover. If your current retirement plan custodian (institution) offers an IRA you like, you can request a trustee transfer that moves part of your account into a new IRA at the same institution. Or, you can request a trustee-to-trustee transfer. Known as a direct rollover, this involves the retirement account custodian wiring a specified portion of your funds to another institution, which deposits them into a new account.

Your third option is to complete a 60-day rollover, known as an indirect rollover, by withdrawing funds yourself and redepositing them in an IRA. If you go this route, the financial institution distributing the money is required to withhold 20 percent for taxes. To avoid a 10 percent early-distribution penalty, you are required to redeposit 100 percent of the withdrawn funds---including the amount withheld for taxes---into the new IRA within 60 days. That means you'll need to come up with 20 percent out of pocket to make up the difference.

Tax-Deferred Accounts To IRAs

If you make a partial rollover from a qualified retirement account to a traditional IRA, you would not owe income taxes, because both types of accounts are tax-deferred.

However, if you roll over tax-deferred funds from a retirement account to a Roth IRA, you must pay income taxes on the money. Usually, tax-deferred funds would come from one of three types of IRAs: traditional, simplified employee pension (SEP) or savings incentive match plan for employees (SIMPLE). However, If your plan administrator allows it, you can request a partial rollover from your 401k, 405b or 457b funds. If you withdrew the entire account, but deposited only part of it into a Roth IRA, you would owe a 10 percent penalty and income taxes on the amount you kept.

Rolling Over Roth IRAs

You may roll over funds from one Roth IRA to another without restriction, partial rollovers included. You may not roll a Roth IRA into a traditional IRA.

Traditional IRA to Traditional IRA

You may do a partial rollover of funds from one traditional IRA to another without tax or penalty, but there is a one-year waiting period before the IRS would allow you to roll additional money out of the same IRA. You also would have to wait a year to roll more funds into your new traditional IRA.