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

paoli2
  |     |   2,641 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.

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6


Answers
ChasR
  |     |   287 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.
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Ltssharon
  |     |   451 posts since 2020
oh, I didn't read this before replying. Yes, as described above. But in my case when I did handle the check myself, and tax time came, my tax accountant got all mixed up, and I had to show him his error in the tax form and he had to redo it. What a hassle. Based on my own experiences, I would prefer , if the two institutions couldn't rush this through, to have the original , at cd maturity, put the money in an ira savings, where it would sit as the two institutions worked it through. You can do this if I did, and then you will have the skill.
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foggy
  |     |   24 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.



     
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Anon456
  |     |   249 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.
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paoli2
  |     |   2,641 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!!
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lou
  |     |   1,002 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.
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paoli2
  |     |   2,641 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. :)
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RickZ
  |     |   217 posts since 2010
I've done indirect IRA rollovers (i.e., where I take possession of the funds) in the past and they're not a big deal. You'll get a 1099-R but that doesn't make it a taxable event provided you deposit the money into the new IRA within 60 days. On line 4a of your 1040 you list the full amount of the distribution and then on line 4b you list the taxable amount as $0. Keep your documents in case the IRS questions it but it's unlikely they will.
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lou
  |     |   1,002 posts since 2010
Just don't do it more than once a year.
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Anon456
  |     |   249 posts since 2011
that's limit is for ALL of your IRA accounts .... so if you have many it can accidently get triggered ... so just stick with trustee-to-trustee ...... pain, but only safe way to do it.
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Ratesaver
  |     |   182 posts since 2013
On this subject with IRAs . When you open a bank cd.IRA. your money after maturity can be left in your bank IRA savings acc. when it matures so this give's you time to get it done properly.. Just tell them upon opening to make sure you have a IRA saving acc... same cd....
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paoli2
  |     |   2,641 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.
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Braden
  |     |   129 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. 
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paoli2
  |     |   2,641 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.
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CuriousDave
  |     |   233 posts since 2018
Your problem is a very common one. Whether you choose to do a Rollover of your IRA or a trustee-to-trustee transfer, your existing IRA custodian - in your case, your bank - has no incentive to spend much time processing your transfer because it is about to lose you as a customer. When you ask to do an IRA rollover, the bank simply writes a check to you personally - in your own name, not in the name of the IRA - which is actaully a kind of trust account holding the money for your benefit - and does not care what you do with the money. In fact, after the end of the year it will send you a Form 1099-R and report the payment to the IRS as a taxable distribution, and it then becomes your personal responsibility to deposit the money with your new IRA custodian - your broker - within 60 days to avoid being taxed, and you cannot do more than one IRA rollover (from anywhere) within any 12 month period. If instead you wish the money to go directly from the bank to your broker, that is a "trustee-to-trustee transfer" and is not taxable, because you never have possession of the money. One would think you would need to instruct the bank to make the transfer, but in practice that is seldom the way it works. Again, your bank is losing your account and has no incentive to spend more time processing an account it is about to lose. That may sound unprofessional and bad business practice, but that's the way it's done. The bank is done with you personally and instead all your paperwork will now be done with your broker, who becomes the custodian of your new IRA account. The forms will however need to include details about your existing bank account. The broker will then forward the details to your bank and request the bank to forward the money to them for deposit to your new IRA brokerage account. This cumbersome way of processing means you will need to allow many weeks before the money is credited to your new IRA account. Even so,  most people prefer to use the trustee-to-trustee method because it is the safest way to move the money in a way that legally avoids the tax issue.
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Braden
  |     |   129 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. 
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CuriousDave
  |     |   233 posts since 2018
Your last paragraph describes the proper procedure to follow for ordering a trustee-to-trustee transfer. You have done your part already. It may seem counterintuitive to initiate the transfer by going to the desitnation IRA custodian (in your case, the broker), but that is how it works. The broker will probably have a form which you as IRA owner had to sign and date for receiving transferred funds from other custodians and that form will include an option to do a trustee-to-trustee transfer. After you complete and sign and date the form, the broker then contacts the bank. After your CD matures, expect the bank to drag its feet making the transfer and to hold on to the funds for as long as it can after your CD matures so it has the use of your money for as long as possible without paying interest. It has no incentive to expedite your transfer, other than it's good business and professional (how does the bank know whether you may one day be interested in investing there again or may be telling others about your experience with them)? All you can do now is regularly check with your broker whether the transfer has been completed.
If instead you had asked for a rollover, that you would initiate by completing a bank form requesting that, and a check will be snail mailed to you (unless you are near the bank and it allows you to pick up the check personally after submitting proof of ID, which is rare). For rollovers you will receive a form 1099-R, and you will need to report it on your income tax return. In the case of a rollover the bank has no knowledge of what you will do with the money goes so it must report the distribution to the IRS and you will need to report it on your tax return. However, if you reinvest the full amount within 60 days at your broker (or another authorized IRA custodian), you will indicate on your tax return that the taxable amount is zero and you owe no tax. There is a separate field on your return for that.
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Choice
  |     |   937 posts since 2020
I do a trustee to trustee with the check payable to transferee Ira trustee and I am merely the courier…all in the same day. I physically deliver the check and I don’t have control of the funds…a “FBO——-“ is noted on check as is a statement of it being an Ira transfer.
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jamesstewart
  |     |   64 posts since 2011
I have done the same as Choice (above) many times without a problem. I just make sure that both institutions are well informed that I am doing a trustee to trustee transfer and the paperwork reflects that and the check is made out as stated.

I really wish the law would get amended to make moving institutions easier.
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Cdbob
  |     |   49 posts since 2017
I also have done this acting as a courier however it seems that it's entirely up to the institutions whether they allow you to be the courier. In my experience most don't allow it. I've attempted it about 6 times locally and only one allowed it. On the one that allowed it, I had no problem with the IRS. If you try it, make sure it is as Choice outlined above, because once the IRS is involved it takes forever to straighten anything out!
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Choice
  |     |   937 posts since 2020
Since my post above the definitive answer can be found by google of "Miscellaneous Pension Protection Act Changes. Notice 2007-7. I. PURPOSE. This notice provides guidance in the form of questions and answers with respect...." See Q 41 quoted below

"Q-41. Is a check from an IRA made payable to a charitable organization
described in § 408(d)(8) and delivered by the IRA owner to the charitable organization a direct payment to such organization?
A-41. Yes. If a check from an IRA is made payable to a charitable organization
described in § 408(d)(8) and delivered by the IRA owner to the charitable organization, the payment to the charitable organization will be considered a direct payment by the IRA trustee to the charitable organization for purposes of § 408(d)(8)(B)(i)"
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paoli2
  |     |   2,641 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.
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Ltssharon
  |     |   451 posts since 2020
I sure will answer your questions. what I would do is start the trustee to trustee transfer thing. Yes, this approval and interactions between the institutions are the way for you to go. However, don't panic. the place where you are now can also, while you are there, open an ira savings account, and upon maturity, put your cd funds in there. Then those two banks can do the trustee to trustee transfer you spoke of.

However, once I did get a cd ira check mailed to me (sorry I cannot remember if it was made out to the bank I wanted to put it in). There are very strict rules about how often you can do this sort of thing. Then the bank where I wanted to put the money in another ira cd gave me a really horrible time and did all that talking about what you are talking about, etc. Back offices had to be called, I had to have my brother (an accountant) get involved, etc. So, I highly recommend you do it trustee to trustee. But get on it immediately and see if you can do it without putting the money temporarily in the original bank in an ira savings account. While you are there at the original bank though, open up an ira savings anyway just in case. It is a real pain to do this., so I will add that if you fail to do it
by an approved manner, you will indeed pay taxes on the whole darn thing and it will be considered an ira distribution.

I hate this whole mess of trustee to trustee so much that I am taking huge hits and taking lots of money as ira distributions. Why? I am old, and when I die, my kids would surely not know all the rules, etc, and would be hit with pretty ridiculous things.
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Ally6770
  |     |   4,156 posts since 2010
I do not trust the mail. Took the post office 6 weeks to get a gifting check from Michigan to Nashville Tn 2 years ago. We have gifted every year to the children since 1990. I now have the boys and myself on a checking account and on Jan 2 the money is in that account and I let them know they can write the check and pay it to themselves. I also do this with my RMD at a credit union that will not ACH it. They want to mail it or wire it. I will not pay to receive my own money. If it is lost in the mail there is a 60 day wait period to see if the cashiers check has been cashed before it will be reissued. I opened a free checking this year and the day when I they deposited the RMD I wrote a check to myself the same day and did with it what I wanted. Navy Credit Union is the only GREAT CREDIT UNION that is very accommodating. No issues every with them. They explain and do it. They have even over nighted a check. I can understand the rules for no ACH's on matured IRA's because of hacks etc and unscrupulous families, but it stupid not to ACH a RMD. I have never done a rollover but had each of the matured IRA CD's made out to another credit union as a traditional or Roth IRA FOB of myself or my husband when I was POA. I opened our first IRA's in 1978. Never had the 1099 stating that it was a rollover.
But I do not deal with banks except the one I worked at. Dealt with credit unions because their rates are as a rule much better and many will go out a longer time span when the rates were good. I cashed my last 10 year CD in Sept and one in Oct. of 2021. Everyone has their own problems with the institutions they deal with. You cannot even trust what they tell you because they won't be there when your CD matures. That is the benefit now that they write in the comment place of your accounts every phone call etc.
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jack12
  |     |   308 posts since 2021
in 2020 I transferred a large amount from my brokerage to a credit union because they pay about 1.25% more
The ONLY way it was possible was to have my broker send a check which I did and I deposited that check to the cu

Because I never touched the money I incorrectly presumed there was nothing needed on my taxes

Well I recently got a letter from the IRS saying I underreported my income by the amount of the check
A fairly easy fix and I can file amended returns for free as I pay for "premium" service from olt (I think I pay $7.95x 2 every year for premium because their free edition does not save all bank info from prior years and its wort $16 to not have to type them all manually for both returns
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GH1
  |     |   1,028 posts since 2017
If your dealing with fidelity, Open the ira give them the information of other account. They handled electronically. Never had a worry with them..
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