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Handling IRA CD Distributions/ Rollover Or Trustee To Trustee Transfer??

paoli2
paoli2   |     |   2,134 posts since 2011

I would appreciate any advice on a problem I am having for the past two days.  My spouse and I have our personal IRAs which have been in CDs in a local bank maturing at the end of this month.  We want to put them in an IRA account at our brokerage.  However no one can tell us if this is considered a "Rollover" or a "Trustee to Trustee Transfer".  It is important to know this because they are handled in different ways.  The bank refuses to give me the checks with the institution's name FBO to our name.  They insist if they give us a check it will have to be in our names and they will send in a 1099 and it can be a taxable event!  They won't do the check made out to the other institution so it will be untaxable to us.  I feel like a babbling idiot because I don't think this has to be as complicated as they are making it.  Does anyone on here know what kind of distribution this will be if it is funds from one IRA going into another IRA at another institition?  Has anyone been given an actual check from a bank etc. when you have had funds mature in a CD and want to take the check to a new bank or brokerage and open another IRA account? 

As it stands now we have to go to the brokerage tomorrow and give them IRA statement copies and they will have to contact the bank's IRA center out of town and get the "Transfer" approved before they can actually do the Transfer.  The CDs don't mature until the end of this month but we are told we need to get the request approved "before" it matures so it can go through in time allotted.  All the different answers I am getting are making me bonkers so I thought I would try to get some input from any of you who have dealth with your own IRA Rollovers or Transfers.  Is what we need to do really a "Trustee to Trustee Transfer" or a "Rollover"?  Thanks for any info you can provide.



Answers
ChasR
ChasR   |     |   113 posts since 2013
Sounds like what I've done many times by a trustee-to-trustee transfer.  This basically involves getting your funds sent directly from the bank to the broker without those funds passing through your hands.  An IRA "rollover" involves the bank giving you a check, and your depositing it with the broker within 60 days.  A trustee-to-trustee transfer is not reported as a distribution to the IRS; a rollover is but, if done correctly, is not taxable.For a transfer, you have to complete and sign an IRA Transfer Request on the form provided by the broker, the broker has to sign that form accepting the status of "successor custodian" under you IRA, and then either you or the broker send the form to the bank, who usually sends a check directly to the broker.  You sound as if you really need a retirement account specialist at both your bank and your broker to tell you exactly what to do, so it gets done correctly without IRS complications.  You really should find specialists you feel you can rely on at those institutions and follow their instructions.
foggy
foggy   |     |   20 posts since 2010
I always do Trustee to Trustee Transfers, never Rollovers.....Transfer is always the safest and no risk of error that would make the transaction taxable.     The Transfer is always handled by the new custodian....your brokerage acct....never by you, so your bank (old custodian) was correct telling you that they would put the check in your name only if you came to them for the withdrawal, which is a Rollover, and NOT the way you should do this.    To do a Transfer, you go to your brokerage and fill out their in-house form requesting the Transfer, and then the brokerage contacts your bank to process the Transfer...not you.   If there is a problem with timing, you might first wait for the CDs to mature and have the bank put the money in maybe an IRA savings or some liquid acct....always still an IRA acct....then after the money is in the liquid IRA acct, fill out the brokerage Transfer form, and then the brokerage has time to request and complete the Transfer.  

Rollovers are fraught with traps, so avoid these!......Examples:  (1) If you fail to meet the 60 day rollover period for some reason, the money will be taxable.    (2) As I recall, an account can only be rolled over once a year, and if you forget this, the rollover would be taxable.  (3) The old custodian (bank) might withhold income tax on the withdrawal, but then you have to rollover the full amount of the withdrawal (gross amount before withholding) in order to avoid taxation on the amount withheld for taxes.



     
paoli2
paoli2   |     |   2,134 posts since 2011
Thanks so much for the advice and help.  I have decided not to use the bank because the employee doesn't seem to understand the implications if it isn't done right.  I called a relative today who is a tax accountant and his advice is basically the same as both of you. He agrees that once I turn it over to the brokerage, we will not be under the gun and any problems will be theirs.  So I will use the brokerage for both of the IRAs and hopefully they have the experience to know what to do and do it right.  I would rather it not be a Rollover but it seems it will be up to the broker what they will call it.  I have my envelope of statements and info they need so hopefully tomorrow we can get this matter started.  I found out today one of the problems is that the "bank" the IRAs were in, has it IRA Dept. out of town so it can't be done as quickly as it would if they had a local IRA department.  Par for the course for this particular bank.   Thanks so much for taking the time to share your information.
Braden
Braden   |     |   124 posts since 2014
The broker is the one that should arrange the transfer. They will give you the papers to fill out and sign or may fill out the papers for you and then you just sign them.  If they make a mistake it is still your responsibility.  Though you may file papers for a ruling. Make sure they have the checks deposited to the correct account that you want the checks put in. 

In the past we have been given our checks made out to the receiving institution FOB and we mailed them overnight or have taken them across town to a different institution and each transaction was considered a transfer. Each bank or credit union has it own policy that it follows. 

After the recent ruling by the tax court I am sure that things will be done more consistently throughout the system. 
paoli2
paoli2   |     |   2,134 posts since 2011
#4  Thank you for the info. What you wrote you did in the past is exactly what I thought they would allow me to do but Chase refuses to issue a check with the FOB as you did.  So we will just put both IRAs with the same brokerage and they can request the money when the CDs mature.  It would have been so much easier to be able to do it the way you did and if we had had the IRAs with a different bank maybe they would have allowed it but now we must do it this way.  I am sure the checks will go into the correct account because it will be the account for the brokerage that is requesting it for us.  I will be so glad when we get it done tomorrow and hope all goes smoothly.    Much appreciation for your input.
paoli2
paoli2   |     |   2,134 posts since 2011
This day isn't done and it has been soooo stressful.  I ended up refusing to let the broker do my IRA transfer because the RMD would have been a nightmare with the small amount of my IRA.  I am taking it to a local bank for hopefully a Direct Transfer and just HOPE they do it right!  We get home and we had an email congratulating ME for my new account with them!  I did NOT do the account.  I only kept the one for hubby.  I just got off the phone again.  No wonder poor people live longer lives than those with a bit of savings!  They don't have to put up with this cr...p!!
Anon456
Anon456   |     |   77 posts since 2011
DO NOT take possession of check.  Even if it is made out to the broker, it will be considered a distribution (1099 event).  The check MUST go directly from the bank to the broker without you ever being in the middle.

YOU MUST let the broker handle it.  You only complete their trustee-to-trustee (Direct Transfer) form giving them authorization to take possession of the funds as a new trustee.  In turn, THEY will contact the bank for mailing (not wiring ..... mailing) the check.  Wiring, at most places, requires the funds to come OUT of the IRA and into a taxable account for the wire.  DO NOT do that.  It will take one to maybe three weeks, but let them do it the right way.

Keep copies of your trustee transfer paperwork.  If there is a problem, it might help with the IRS to show that you never authorized anything except a direct transfer. 

Make sure you remind the broker that this IRA transactions needs to be coded in their systems as a DIRECT TRANSFER.  If done correctly, no 1099 or 5498 should be generated.
Braden
Braden   |     |   124 posts since 2014
I have taken IRA checks from 3 different institutions and had the check made out to the new institution for the benefit of and NEVER have I received a document stating it was a rollover requiring to put the figure on line 15 that it was a rollover. On 2 occasions I hand delivered the checks and in one I overnighted it. I asked before the transaction how it would be coded on the 1099. It has stated rollover at the bottom of the form. Last one I did this way was in 2011 or 2012. Won't have any more due until 2018 and those are not local so will have a transfer done most likely. 
paoli2
paoli2   |     |   2,134 posts since 2011
I guess I should mention the one good think Chase actually did about DP's Transfer.  When I did my "raindance" over the phone with the person in charge of IRA transfers about their sending the IRA transfer check to the other Trustee via regular mail instead of just overniting it, to my surprise they cancelled the first check and sent another Fedex which got there the next morning.  It was deposited into the IRA in the brokerage account as needed and all seems to be well with their transaction.  AFAIK, Chase did not charge us for cancelling out the first check either.  So now all we have left at Chase is one personal checking account and this is the way we prefer it.  But we are grateful they ended up doing the right thing about the check and Fedexing it.
lou
lou   |     |   629 posts since 2010
I hate, hate hate trustee to trustee transfers. They are a pain in the ass, but with the new rules for rollovers there is really no alternative.
paoli2
paoli2   |     |   2,134 posts since 2011
Lou:  Wow!  We have something in common.  I bet I hate them more than you do now but  as you wrote.  We're kind of stuck now so just do what I do and keep a lot of Mylanta handy. :)