Recently, I received a question from an investor about what happens when an account gets transferred from one brokerage firm to another. He asks, “Can I transfer my account without penalty?”
We can all relate because from time to time we’ve all had a loan that’s transferred or have chosen to transfer a brokerage or retirement account to a different firm. The devil’s always in the details. And having personally survived an uncoordinated hand-off when my old mortgage servicing firm decided to transfer my loan to another firm, we all wonder what can happen when moving accounts. We may find ourselves asking “How much will this cost me in the end?”
Account Transfers: Can I Transfer My Account without Penalty?
Are there any restrictions or charges you may incur if you transfer part of all of your investment portfolio from a full service broker to another firm like a discount broker or advisor (human or robo)?
If your positions in mutual funds, stocks and bonds are accepted at the new brokerage platform, you should be able to move all the positions “in-kind” without having to sell them which could otherwise generate a taxable gain or loss. Sometimes this may not be possible. Case in point: Many digital or robo-advisor platforms exclusively use Exchange Traded Funds (ETFs) and will not be able to hold mutual funds or stocks. In this case, you would need to liquidate your positions to cash before completing a transfer.
If you’re moving funds that are presently in a retirement account (i.e. IRA, SEP IRA, Roth IRA), you won’t incur any penalties as long as you have the funds transferred directly from the old brokerage platform to the new custodian platform. Yes, the IRS allows folks to take possession of the funds for 60-days before replacing them in a new IRA but why run the risk? Better to have a direct transfer of the funds. Otherwise, you could be subject to early withdrawal penalties. (Again, this only applies if you’re moving funds from one IRA to a different IRA at a new firm).
There may be a potential fee that may be incurred when closing out an account is an account-closing fee disclosed by the brokerage platform. This could range from $50 to $150 on average. Check with the brokerage platform.
If the account you’re closing is an IRA, you may also be responsible for the annual custodial fee for the account which is based on any portion of the year that the account was open on the custodian platform. This could range from $25 to $65 per year per account.
Need Help With a Transfer?
If you need help with a transfer and are looking for objective advice like what you see here, then reach out to schedule a no-obligation initial phone call so that we can review your questions.
