Wiemann: Difference Between Rollovers & Transfers

By SHELLY A. WIEMANN
Founder, Wiemann Wealth Strategies, LLC
Financial Advisor, Raymond James Financial Services

Every day, I receive questions on the difference between a rollover of securities from a 401k, versus a transfer. It happens so frequently I decided it was time to discuss in this column.

For instance – if you are retiring and want to rollover your employer 401k into an Individual Retirement Account (IRA), this requires a DIRECT ROLLOVER. A direct rollover is a non-taxable transaction that requires selling the current investments in your 401k and transferring the cash proceeds of those investments into your IRA.

The market value of the investments at the time the rollover request is received will dictate the amount of funds that arrive in your Individual Retirement Account. Why is it non-taxable? Because in a direct rollover, you have your employer plan send the funds to your IRA Custodian directly, not to you in your name alone. For instance, Broker Dealer XYZ Custodian, IRA for benefit of Shelly Wiemann RATHER THAN Shelly Wiemann IRA. 

A Transfer, however, is a very different process. If I am transferring an IRA from one financial institution to another, this is not a rollover, it is a transfer. The securities are moved in-kind. For example, if you have 100 shares of Company Stock X in your IRA at Fidelity before the transfer, 100 shares of Company Stock X arrive at receiving firm after the transfer. In this case, the investments are not sold during the transfer, they are brought over “in-kind” or “as-is”, so to speak.

It is important to note that some investments clients own might be proprietary to the firm in which they are held. So, it is important to ask the receiving institution/financial advisor if this applies to your unique situation BEFORE you initiate the transfer. Proprietary (unique to firm) investments must be liquidated before transferring from firm to firm. However, I’ve found during my career that proprietary investments are the exception not the rule.

So, it’s quiz time – which process may impact the client negatively if the market is down when it occurs? Rollover or Transfer? Answer – Rollover. 

If you continue to have questions, ask a licensed financial professional for more information on your unique situation. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.

Wiemann Wealth Strategies, LLC is not a registered broker/dealer, and is independent of Raymond James Financial Services. Investment advisory services offered through Raymond James Financial Services Advisors, Inc. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC.

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