You’re not locked into your IRA custodian and an IRA transfer might just bring better guidance and lower fees
One of the most frequent questions we get about managing your IRA and IRA transfers is if you are locked into your current custodian once you transfer the funds or roll over your 401K. The answer is absolutely not. You can transfer your IRA from one custodian or bank to another as many times as you like.
There may be benefits to performing an IRA transfer to a different custodian…but there are also risks and costs involved.
Benefits of Transferring IRA to another Custodian
Transferring your IRA from one custodian to another most often occurs because of dissatisfaction with your current investment firm or buying into another company’s proposed change of direction. The six most common reasons clients state for an IRA transfer are often:
- Poor or flat investment performance
- Dislike of your current adviser or firm
- Difficult to contact administrators
- High pressure sales tactics
- Reaction to another firm’s marketing message
- You are being hit with excessive fees
Before you commit to an IRA transfer to another custodian, you need to ask yourself if the reasons above were beyond the control of the custodian or if they were truly negligent in some way.
Always be sure to compare your IRA investment performance against an index of similar assets or investments. Your funds may have performed poorly against the overall stock market but how did they do against other funds invested in the same assets or type of stocks? If your IRA custodian under-performed other funds that track the same types of investments and has done so consistently, then you might be right in considering an IRA transfer.
Personal differences between a client and IRA custodian may happen from time to time but deep-seated distrust isn’t a basis on which you can hold a relationship. You may have checkbook control over your IRA assets but you still need to trust your custodian and the firm.
Unfortunately, many IRA custodians push clients to churn their investments to add up commissions or fees in the account. If this is the case or if you believe the firm is not responsive to your needs or questions, then an IRA transfer may be the way to go.
When it comes to retirement account diversification, generally more is better than less. Just because you worked for a major oil company for 45 years is not a good reason to have your entire nest egg working in their stock. As you get older, you may want to have several different types of investments; however, it’s important to be sure they move inversely to one another.
Risks and Costs of an IRA Transfer to another Custodian
An IRA transfer to another custodian isn’t without risk. There is no guarantee that your new IRA custodian will not commit the same errors as your old custodian. There’s also no guarantee that the new custodian will perform any better than the last with your investments.
Potential pitfalls to keep in mind before switching your IRA to another custodian are:
- Buy and sell fees on both sides of the transfer
- Potential for under-performance of returns by new IRA custodian
- Potential for negligence or poor management by new brokerage
Avoiding these risks means understanding all the fees involved in an IRA transfer and knowing the new custodian to which you want to transfer your assets. The new IRA custodian should have historical data to back up any performance claims. Look beyond the smiles and brochures over lunch to get to know the new custodians. Ask other clients what they dislike about the firm and its management of their assets.
Transferring your IRA to a different custodian shouldn’t be confused with an IRA transfer to another IRA held with the same custodian, which is limited according to new IRS rules. The IRS instituted the one-rollover per year rule in 2015. From that point, you can only make one IRA transfer to another IRA held by the same trustee.
The rule doesn’t limit the number of IRA transfers you can make from one custodian to another or the number of 401K rollovers or Roth IRA conversions you can do in a year.
Transferring your IRA to another custodian can be a risky and costly event so think carefully before you commit. You only want to do it once so make sure you have selected a custodian you can trust through retirement with your IRA transfer. Make sure they understand and answer all your IRA transfer questions and help you understand the process.