Before moving IRA money, confirm whether the transaction should be a direct transfer.
Having a distribution paid to you can create taxes or eliminate options that a transfer between financial institutions would preserve. Nonspouse beneficiaries face especially strict rules, and some mistakes cannot be repaired by putting the money back. Your retirement accounts also need to work with your estate plan. For families in Naperville and throughout Illinois, that means reviewing both the transfer instructions and who will inherit the account.
What is the difference between an IRA transfer and a rollover
A trustee-to-trustee transfer moves IRA assets directly between financial institutions. An indirect rollover involves a distribution paid to you, followed by a deposit into an eligible retirement account, generally within 60 days. The distinction matters because indirect IRA rollovers have restrictions that direct transfers avoid. The IRS explains these options in its guide to retirement account rollovers.
Taking an inherited IRA distribution before arranging a transfer
If you inherit an IRA from a parent, sibling, or anyone other than your spouse, you cannot roll a distribution into your own IRA. You also cannot use a 60-day rollover to put it back into an inherited IRA. For example, if you inherit your mother’s traditional IRA and have the balance paid to you, the taxable portion generally becomes income for that year. Depositing the money into another IRA does not restore its inherited status. To change custodians, arrange a direct transfer to a properly titled inherited IRA that identifies the deceased owner and you as beneficiary. See IRS Publication 590-A for the nonspouse beneficiary rules.
A surviving spouse has additional options. The best choice depends partly on the spouse’s age and need for withdrawals, so confirm the approach before moving funds.
Assuming the rollover limit resets on January 1
The one-rollover-per-year rule generally permits only one indirect IRA-to-IRA rollover during any 12-month period. The period runs from receipt of the distribution, and the limit applies across your IRAs collectively, including traditional and Roth IRAs. Completing a rollover in December does not make you eligible for another one in January. Opening a different IRA does not restart the clock either. An ineligible rollover can produce taxable income, an early-distribution tax where applicable, and an excess contribution if the money is deposited into an IRA. Direct transfers between IRA custodians are outside this limit. Roth conversions and rollovers between employer plans and IRAs are also outside it, although those transactions have their own rules.
Selling distributed investments before rolling them over
For an indirect IRA-to-IRA rollover, the same-property rule matters. If your IRA distributes shares of stock, you generally must roll over that same property. You cannot sell the distributed shares and substitute cash. This rule concerns property distributed out of the IRA. It does not generally prevent buying or selling investments while they remain inside the account. If you are changing financial institutions, arrange the transfer first. Confirm whether investments will transfer intact or be sold within the IRA before cash moves directly to the new custodian.
Changing an early withdrawal payment plan without checking the rules
A 72(t) plan, also called substantially equal periodic payments, can allow withdrawals before age 59½ without the usual 10% early-distribution tax. Taxable withdrawals still generate ordinary income tax. The required payment schedule generally must continue until the later of five years after payments begin or age 59½. An extra withdrawal, added contribution, or other prohibited change can trigger retroactive early-distribution taxes plus interest. Some changes are permitted, including a qualifying one-time switch from a fixed payment method to the required minimum distribution method. That makes professional review essential before changing the account or payments.
Before starting, consider using a separate IRA for the payment plan so other retirement funds remain available for flexibility and to avoid IRA rollover mistakes. The IRS provides detailed guidance on substantially equal periodic payments.
How IRA beneficiaries fit your Illinois estate plan
Your IRA beneficiary designation generally controls who inherits the account. Changing your will does not automatically update that designation. Review primary and contingent beneficiaries whenever you update your estate plan.
Naming a spouse, children, or a trust can lead to different results. A trust may help manage an inheritance for a minor or protect a beneficiary, but its terms and the retirement-account rules must work together. Naming a trust is not automatically the best choice for every IRA. For Illinois families with substantial retirement assets, beneficiary choices also deserve review as part of Illinois estate tax planning. Income taxes on withdrawals and estate taxes at death are separate issues. My article on inherited IRA tax planning explains why withdrawal timing matters for your heirs.
A checklist before moving IRA assets
- Identify whether you own the IRA or inherited it.
- Ask both custodians to confirm the transfer method and receiving account title.
- Check prior indirect rollovers and any required minimum distribution.
- Confirm whether a 72(t) payment plan affects the account.
- Keep written instructions and confirmation of the completed transaction.
- Common questions about IRA mistakes
Can I move an inherited IRA to another financial institution
Yes. A nonspouse beneficiary can generally use a direct trustee-to-trustee transfer to another properly titled inherited IRA. Having the money paid to you first prevents using a 60-day rollover. Avoid this common IRA rollover mistake.
Do inherited IRA beneficiaries have to take annual withdrawals
Sometimes. Many adult children inheriting after 2019 must empty the account by December 31 of the tenth year following the owner’s death. If the owner died on or after the required beginning date, annual required minimum distributions generally also apply during that period. Exceptions depend on the beneficiary. See IRS Publication 590-B.
Can an IRA rollover mistake be corrected
Sometimes. Certain missed 60-day deadlines qualify for relief. That relief does not eliminate the one-rollover-per-year restriction or allow a nonspouse beneficiary to roll over an inherited IRA distribution. Get advice promptly before attempting a correction or you could make other IRA rollover mistakes.
Review your retirement accounts with your estate plan
I help families in Naperville and the western suburbs coordinate wills, trusts, and beneficiary designations. If your retirement accounts represent a significant share of your assets, contact me to review how they fit your estate plan. Coordinate any proposed transfer or withdrawal with your financial advisor and tax professional before authorizing it.
This article provides general information, not advice for a particular account or transaction. Rules reviewed September 30, 2026.