An IRA is a retirement savings tool that provides significant tax savings. It can be useful to consolidate or transfer funds in different retirement accounts in some cases. However, these plans are tightly regulated by the IRS. Transferring funds from one traditional IRA to another can be done under limited circumstances, but changing account owners generally is not allowed.
As the name suggests, an individual retirement arrangement (IRA, also called an individual retirement account) must be owned by a single person. Joint IRAs, for example, are not permitted. Withdrawals from a traditional IRA are taxed as ordinary income in retirement. Furthermore, traditional IRA owners under age 59 1/2 may be subject to an additional 10 percent tax penalty on withdrawals.
Tax-Free IRA Transfers
Funds within a traditional IRA may be transferred tax-free in several ways. The most common tax-free transfer is a rollover. A qualified rollover occurs when the owner withdraws funds from an IRA and redeposits them in another qualified retirement plan within 60 days. Tax-free transfers may also be done by directly transferring funds from one IRA trustee to another, a process known as a trustee-to-trustee transfer. In a trustee-to-trustee transfer, funds are moved directly from one retirement plan to another without the owner ever taking control of the funds. These tax-free transfers require that both the starting and ending account be owned by the same person.
Other Transfers Limitations
While there is no way to directly transfer an IRA to another person's name, the funds can be withdrawn and deposited into an IRA in the other name. However, there are some limitations. The deposits into the new IRA are contributions. Contributions are limited to $5,000 annually, with an additional $1,000 catch-up contribution allowed if the IRA owner is age 50 or older. That means that a maximum of $5,000 ($6,000 if 50 or older) can be moved in this way.
Other Transfers Taxes
Transferring traditional IRA funds to another name by withdrawing and redepositing money is taxable. Only funds redeposited into your own IRA can qualify as a tax-free transfer or rollover. Withdrawals deposited into an IRA owned by someone else do not qualify for special tax treatment. Such withdrawals are considered ordinary income and are taxed as income. If the account owner is under age 59 1/2, an additional 10 percent penalty also applies.
An exception to the tax rule applies if transfers are required as the result of a court order during divorce proceedings. Those transfers may be tax-free. However, you cannot change the name on the IRA. Your former spouse must open his own IRA in his name, and the necessary funds are transferred to the new account.