When it comes to taxes, most people want to pay as little as possible by rolling over to another account. Failing that, they’d like to postpone paying taxes as long as possible. For this reason, most of people rollover to Individual Retirement Accounts (IRAs) for their retirement investing needs.

An IRA allows you to postpone paying IRA taxes on money you earn – and on the investment income that money earns – until the money is withdrawn, usually at retirement age when you’ll (hopefully) owe less in taxes.  But suppose your money isn’t just sitting in the IRA, building interest – suppose you’re actually in the process of rolling over money from an old IRA into a new account.  Will you be charged IRA taxes then?  The answer is – in most cases – no.

First, you’ll need to consider the type of account into which you’re rolling your IRA funds, as there are a few types of accounts that may not be able to accept your IRA funds.  Designated Roth IRAs and Simple IRAs, for example, can only accept rollover funds from the same type of account.  If you have a 457b IRA and try to roll your money over into a Simple IRA, the transaction will fail and the money in your account will be paid out to you.  Receiving your funds early isn’t a rollover, and will subject you to IRA rollover taxes, withholding and early withdrawal penalties.

So step one in avoiding IRA taxes during a rollover is to make sure that your new account is eligible to receive a rollover.  The second step is to make sure that not only is your new account eligible because of its structure, but also that it’s ready to receive a rollover.  Generally, there’s a delay between the time when you “open” the account and the point where it’s actually up and running (this can be a few days or a few weeks).  Fortunately, you can find the answer to this question by simply calling the account trustee or manager of the new target IRA and asking if the account is ready to receive your IRA rollover.

Once you get the go-ahead from the new account trustee, ask the trustee to initiate a direct rollover.  A direct rollover is the simplest way to avoid paying IRA taxes on your rollover, as it involves the movement of your money directly from one account to another.  Because the money is never in your physical possession, you avoid any appearance of having received a withdrawal in the eyes of the IRS.  If you request a direct rollover of your IRA funds into a new IRA account that can receive the funds and is ready to do so, you should be able to avoid any taxes on your IRA rollover account transfer.

There are two exceptions to this rule that give rise to the qualified “no” answer given above.  The first exception is the case of the Roth IRA.  If you rollover your IRA to a Roth IRA, you will be charged a Roth IRA tax penalty, unless your previous account was a Roth IRA.  This is because Roth funds are contributed after tax, so any rollovers made from pre-tax accounts (like traditional IRAs) will need to be taxed before they can be included in the account.

The second exception is in the case of the indirect rollover, a transaction that’s a kind of a hybrid between the cash out option and a direct rollover.  In this situation, your account funds are paid directly to you, and you then contribute them to a new IRA.  Because the funds are paid to you, there will be withholding, which you will only be able to get refunded if you turn around and deposit the IRA proceeds into a new IRA within the IRS’s specified time frame.  Since you do wind up contributing the funds to a new IRA, you should be able to avoid IRA taxes and penalties on the money.