When a "direct transfer" of funds from one IRA to another IRA at a different financial institution is requested, a check is mailed. For the second time in the last several years I apparently had one of these transfers lost in the mail. Unfortunately there was no tracking information available, but the forwarding and receiving banks immediately concluded the check was lost in the mail. The first time the check was for over 100k, the more recent check lost was over 240k. It usually takes several weeks to get the transfer completed when this happens (2 weeks waiting for slow mail to be delivered, another 2-3 weeks to get "stop payment" and an affidavit from receiving bank and a reissue of the check). During this time the money is in limbo somewhere. So I am wondering why in my lifetime, have I never had anything lost in the mail except for 2 large checks mailed for my benefit from one bank to another. Is there a conspiracy by banks to delay withdrawals of large amounts by claiming checks were lost in the mail? Is the money pending withdrawal held in the bank's float account earning interest for the bank? I'm frustrated and getting a little paranoid, I guess. But has this happened to anybody else with "direct transfers"? I wish banks would send checks with tracking information available.
Answers
For the amounts of money in an IRA, that sounds incredibly negligent, bordering on criminally negligent. But since all here seem to think that is routine, I guess its OK with the powers that be. I would wish someone would bring a lawsuit about such a delay, and get a finding the liability was on the sending bank or receiving bank or both. The sending bank could have at least chosen to send with tracking -- they make a lot of money off your IRA, and will continue to do so until that check clears, its not like a couple bucks for tracking is going to bankrupt them.
The mere delay is bad, but for large amounts, the lost interest can be a lot. Consider his $240,000 amount. If he/she was going to get, say, 2.0% APY (and he/she can get more now, and in a more normal interest environment would get a lot more), the lost interest for even the low side of time he/she is quoting, four weeks, would be about $368. That is money the BANK will be making on his money, they still hold it until the check is cleared! And the bank is going to keep that windfall, instead of simply paying him interest, since they still hold his money, while the check is lost!
Why do we not have a law requiring them to continue to pay him interest during that time the check is lost, and at a reasonable rate, not the nearly nothing savings rate the money was put into the day of transfer after being in a CD at 2%?! That is only fair, and it at least would be a disincentive to create delays -- and maybe intentionally -- and blame it on the post office. (Over the years, I have noticed that every time a BANK or other business screws up, they blame it on the post office -- every time, not even any research to determine that! But as noted here, the delay seems always to be only with the one place, repeatedly, no other mail.) Making the bank continue to pay interest during that delay -- which would not even be any loss to them since they still hold the money -- would make it clear the responsibility is the bank's.
I did a custodial-to-custodial IRA transfer once some years back. Mine went smoothly, fortunately, was done in, as I recall, two days. I'm not sure I knew that was postal mail rather than ACH.
You can have request and pay for an overnight transfer from most institutions or at least pay for a registered return receipt requested and follow the check throughout its journey and print the copy of the signature of the receiving person.
I have no clue why people choose custodian-to-custodian transfers, placing their IRA fate into the hands of others. The tales of woe when using this choice are legion. Still, to each his own I guess.
CAREFUL. IF you get a hiccup or step on the IRS toes, it may take a year or two for them to come see you for tax due on that DISTRIBUTION. Best to take the delay and use trustee-to-trustee direct transfers. YES - it may take 2-3 weeks, so most of my IRA CD's are in two or three year maturity so I don't get short term movement with those delays. If you have many CD's, it is easy to accidentally forget that you have already had one transaction, and the second is now taxable. FYI - lately I have found more and more of these firms will accept FAX copies rather than originals, so it does help speed things up.
All my IRA funds are Roth IRA. I can take a "distribution" any time I want with no imposition of tax whatsoever. Regardless, it has never been an issue and never will be.
It would be interesting to determine when the receiving bank cashed that check -- maybe four days after it was mailed!
Still, even under this circumstance, where it is the receiving bank causing the delay, since the sending bank still has the money because the check has not come through, the sending bank should still have to be paying you interest. (And I would say the same for any check clearance.)
The government has requirements about how fast your typical ACH transmittal must be deposited. Perhaps this is why these banks are mailing these funds instead of sending through the ACH -- so they can game the system and "lose" your money for maybe two weeks. It doesn't take two weeks to do the paperwork to open an IRA, that can be done easily same day the check is received. We need banking rules to require these funds be deposited same day received, no matter the method of transmittal -- of course, the problem with enforcing that is the difficulty in the government being able to know when something in the mail was received.
I'm not sure tracking is the issue here. With no federal requirement about how fast they must deposit something received by postal mail, unlike via ACH or fed wire, they would delay it anyway.