When it comes to planning for your retirement, Individual Retirement Accounts (IRAs) are a popular investment option for many Americans.
An IRA is an account specifically designed to help you save for retirement, allowing you to save money on a tax-deferred or tax-free basis.
The great thing about IRAs is that they come in two types: Traditional and Roth. Each type has its own eligibility requirements and advantages.
Robinhood is a commission-free trading app that has made a name for itself by democratizing investing and making it easier for everyone to invest in stocks and other securities.
In this article, we will explain Robinhood IRA rollovers and transfers in an easy to understand manner, the pros and cons of doing so, and answer some frequently asked questions.
Types of IRAs
Before we dive into how to rollover or transfer an IRA, let’s first go over the two types of IRAs that exist: Traditional IRA and Roth IRA.
A Traditional IRA allows you to make pre-tax contributions, which reduces your taxable income, and you pay taxes when you withdraw the money during retirement.
Contributions may be tax-deductible, depending on your income and whether you or your spouse is covered by an employer-sponsored retirement plan. If you are under 50 years old, you can contribute up to $6,000 per year, while if you are over 50, you can make catch-up contributions of $1,000 per year.
A Roth IRA, on the other hand, is funded with after-tax dollars, and your contributions are not tax-deductible.
However, the money in a Roth IRA grows tax-free, and you do not have to pay taxes when you withdraw the money. You can contribute the same amount to a Roth IRA as you can to a Traditional IRA.
What is an IRA Rollover?
An IRA rollover is when you move funds from one retirement plan to another, and it is typically used when you switch jobs. For instance, if you have a 401(k) from a previous employer, and you would like to move those funds into an IRA, you would perform a rollover.
When you perform an IRA rollover, you have to complete the entire transaction within 60 days.
If you do not complete the transfer within that timeframe, the IRS will consider the transfer as a distribution instead of a rollover, and you will have to pay taxes on the full amount of your withdrawal.
What is an IRA Transfer?
An IRA transfer is when you move funds from one IRA account to another, and it does not trigger any tax consequences.
You can transfer an IRA from one account to another as many times as you want, as long as the funds are directly transferred between the trustees.
The difference between a rollover and a transfer is that an IRA transfer does not require you to complete the transaction within 60 days. Instead, the funds are transferred directly from the trustee of your old IRA to the trustee of your new IRA.
How to Perform Robinhood IRA Rollovers and Transfer (A Stepwise Process)
Now that you understand the basics of IRAs, rollovers, and transfers, let’s discuss how to rollover or transfer an IRA to Robinhood.
Step 1: Open a Robinhood account
To rollover or transfer your IRA to Robinhood, you need to have an account with them first. You can download the Robinhood app from the App Store or Google Play Store and sign up for free.
Once you have completed the signup process, you can begin looking for the IRA rollover or transfer option in the app.
Step 2: Request a rollover or transfer
Next, you will need to request a rollover or transfer from your current IRA account. You will need to provide your account number and other relevant information to your old IRA account trustee.
Step 3: Complete the transfer paperwork
Your old IRA account trustee will provide you with the paperwork necessary to complete the transfer. You will need to fill out the paperwork and return it to them. Once completed, Robinhood will then send a request to your old firm to transfer the assets to Robinhood.
Step 4: Wait for the transfer to complete
The transfer process time can vary, but it typically takes one to two weeks to complete. Once the transfer is complete, you will see the funds in your Robinhood account.
Pros and Cons of Transferring to Robinhood
Now that you understand how to transfer an IRA to Robinhood, let’s discuss the pros and cons of doing so.
Pros:
- Commission-free trading means you do not have to pay any fees when you purchase or sell stocks or ETFs. This can save you a significant amount of money in the long run.
- Convenient and easy to use: Robinhood has a user-friendly app that makes investing in stocks and other securities simple and straightforward.
- Access to investment research: Robinhood provides its users with market data, news, and investment research.
Cons:
- Limited investment options: Robinhood currently only offers ETFs, stocks, and options trading. If you are looking for other investment options, such as bonds or mutual funds, you will have to use a different investment platform.
- Poor customer service: Robinhood’s customer service has faced criticism for being slow and difficult to reach.
- Lack of advanced trading tools: If you are an experienced investor looking for advanced trading tools, Robinhood may not be the best option for you.
Frequently Asked Questions
Can I rollover my 401(k) to an IRA on Robinhood?
Yes, you can rollover your 401(k) to an IRA on Robinhood. However, you should consider the pros and cons of doing so before making any moves.
What are the taxes and fees associated with IRA rollovers and transfers?
If you do an IRA rollover, you have 60 days to complete the transaction, or it will be considered a distribution and be taxable. However, if you do an IRA transfer, you do not have to worry about paying taxes or fees.
Is there a limit to how many times I can move my IRA with Robinhood?
No, there is no limit to how many times you can transfer or rollover your IRA account with Robinhood.
Conclusion
Robinhood can be a great option for investors looking to transfer or rollover their IRA account. It has made investing more accessible and commission-free, making it an excellent choice for first-time investors.
However, it is essential to consider the pros and cons of transferring to Robinhood and compare it with other investment platforms before making a decision. Always research before taking any steps with your hard-earned savings.
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