IRA Transfer Fees + Question

racecar | Dec 22, 2022 | 616 posts since 2014

Hi, please help w/your thoughts, as trying to figure out what to do.

There are some FIs with good IRA rates currently, but with high IRA Fees (GTE charges $50 each time they send your IRA money to another institution. Wow.) NavyFed is my IRA home base (because they allow yearly add-ons) but GTE's rates are better. But because of the $50 fee I'm trying to decide what to do.

I know instead of a bank-to-bank transfer, one can get the money and re-deposit it themselves--but you're only allowed to do this ONCE in any 365 day period.

(1) Does that ONCE in 365 days rule still apply once you turn 59.5 for Roth funds? (After 59.5 you can take Roth $$ out without IRS penalty as much as you want--but not sure if you can then RE-DEPOSIT any as a ROLLOVER again if you've already done an indirect rollover once within the last 365 days or not?)

(2) Do most institutions (or does your IRA institution) charge a fee for sending IRA funds to another institution? Say your have IRA $ at Bank A, and you want Bank A to send your IRA $ directly to Bank B. Does your Bank A charge you a fee for doing that?

If I were to open up only a small IRA CD @ GTE (under 7K) it's probably not worth it, right? Because at maturity, I'd either have to use my once-per-365-days-only indirect rollover (and would rather not in case I need to use it elsewhere), or be charged a $50 fee for sending it elsewhere? (Most likely to Navy)

Thoughts? Thanks! (This is all ROTH IRA $ not Traditional IRA)

Do most other places (Alliant, Interior, Navy, etc) charge people when you ask them to send part or all of your IRA $ directly to another institution?

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Answers

alan1 | Dec 24, 2022 | 877 posts since 2015

racecar -- please look at IRS documents to answer your question. Please pay no attention to people who believe it is helpful to announce that they "don't see" why the one rollover per 365 day rule should apply to Roth IRAs. It is a question of tax law, not ophthalmology.

Please read IRS Publication 590-A.

from page 44 of the PDF at https://www.irs.gov/pub/irs-pdf/p590a.pdf

"Rollover From a Roth IRA

"You can withdraw, tax free, all or part of the assets from
one Roth IRA if you contribute them within 60 days to an-
other Roth IRA. Most of the rules for rollovers, described
in chapter 1 under Rollover From One IRA Into Another,
apply to these rollovers."
(bold in original)

Now, let's go to Chapter 1, as the IRS directs the reader to do. Specifically, let's go to the "Rollover Chart", Table 1-4, at page 22 of the PDF at https://www.irs.gov/pub/irs-pdf/p590a.pdf

The first entry in the two columns ("Roll From" and "Roll To") is "Roth IRA". The chart says "Yes", a rollover from a Roth IRA to a Roth IRA is permitted, and the reader is referred to note 2, which states:

"Only one rollover in any 12-month period."
(emphasis added)

Of course, you can do multiple trustee-to-trustee transfers.

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lou | Dec 24, 2022 | 1,004 posts since 2010

It is also not helpful to read the text like a robot without using your brain to interpret the rules or how they would apply to your own situation. Obviously, the text in this situation is for a Roth owner who is either not 59.5 or hasn't owned the Roth for a least 5 years. In that case if you did more than one 60-day rollover in a year, the earnings from the Roth would become taxable and you would have to pay penalty if you're under 59.5.

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MY2CENTSWORTH | Dec 24, 2022 | 436 posts since 2016

lou...thanks for the kind words! But, now you're changing your tune in this comment. I would suggest that if racecar can't read and interpret the IRS regulations as they pertain to "taking" the Roth funds and then depositing them himself into another Roth Ira that he take the time to educate himself on the proper terminology for what his intentions are and consult a CPA or possibly try to obtain an answer from IRS directly as everyones individual situation varies. Good luck racecar!

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lou | Dec 24, 2022 | 1,004 posts since 2010

Actually, that comment wasn't directed to racecar. It was for Alan and possibly you who are reading the text without trying to understand the complexities as it applies to various situations.

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CuriousDave | Dec 24, 2022 | 233 posts since 2018

Consulting a tax pro such as a CPA is a really good idea, especially regarding moving any kind of IRA funds around. It may surprise readers to know that IRS Publications are not tax law or “regulations” and do not necessarily reflect actual tax law, which is enacted by Congress; what the publications do is set forth the IRS’ interpretations of the enacted laws. It does not happen often, but every so often something in an IRS publication is ruled invalid by the courts. One of the most interesting examples is that very rule that disallows more than one rollover every 365 days. Earlier IRS publications never included that prohibition and for years everyone believed one could rollover without time restrictions. One day a case involving a separate IRA issue came before the court, when it was revealed that the IRA owner had been rolling over IRA accounts more regularly than once a year, which the IRS had never challenged before. That was the Bobrow case referred to below by RickZ. The court could not find anything in the enacted laws that allowed more than one annual rollover, and no one was more surprised at that court ruling than the IRS - along with the entire tax preparation community. The law was never changed; the court simply pointed out that the IRS - and everyone else - had been misinterpreting the existing law all along. After that, the IRS has been very diligent in including in its applicable publications a warning that only one rollover per 365 days is permitted.

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alan1 | Dec 24, 2022 | 877 posts since 2015

Thank you, CuriousDave. Another example of CuriousDave's excellent point is the home office deduction for self-employed persons. I no longer follow this issue, so I don't know if anything has changed (either at the IRS or in Tax Courts), but for many years the IRS had a very stringent definition of a home office. The IRS would regularly apply its criteria to disallow home office deductions; Tax Court judges would apply less stringent criteria and regularly reverse the IRS.

The Bobrow decision, mentioned by CuriousDave, can be found at https://www.medicaidannuity.com/wp-content/uploads/2014/02/BobrowMemo-Nega-TCM-WPD-IRA.pdf
The tax preparation community was certainly taken by surprise, but I'm not sure that "no one was more surprised at that court ruling than the IRS".
See, e.g., first full paragraph, col. 2 et seq. at https://www.asppa.org/sites/asppa.org/files/PDFs/GAC/ASAPs/14-04.pdf

And, as CuriousDave also noted, in the context of racecar's question: "only one rollover per 365 days is permitted."

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lou | Dec 25, 2022 | 1,004 posts since 2010

Please answer this question which you continue to avoid: If you do two rollovers of just Roth IRA's where the owner is 59.5 and both Roth's have been existence for over 5 yrs, what would the penalty be for violating the rule. Find me something in the regulations that tells us. Obviously, if there is no penalty, then why not do it.

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alan1 | Dec 25, 2022 | 877 posts since 2015

The consequences are set forth in the pages of IRS publications that I have cited. Please read the publications in their entirety. You can then follow CuriousDave's suggestion, "Consulting a tax pro such as a CPA is a really good idea", for further elucidation. As I mentioned earlier, below, I have no interest in further engaging with you on this matter.

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lou | Dec 25, 2022 | 1,004 posts since 2010

That is a dodge, not an answer. They don't spell out the consequences for my particular example because there isn't any. You have no further interest in the matter because you don't know what you're talking about.

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RickZ | Dec 24, 2022 | 218 posts since 2010

Of course alan1 is correct that all that matters is what the tax law states. However, I also think it can be illuminating to understand why the one-per-12-month IRA indirect rollover rule was put in place.

Quoting from an article: “Years ago, IRA owners could take multiple distributions and roll them over in the same year—as long as they rolled over only one distribution per IRA. Some individuals took this opportunity to an extreme by opening multiple IRAs in order to take advantage of this rule. For example, a business owner with a cash flow problem might use multiple IRA distributions to meet payroll. By maintaining 12 separate IRAs, the owner could take a distribution to meet expenses and roll over that distribution within 60 days—assuming of course that the owner had the assets to complete the rollover. But if not, another distribution from a different IRA could be used to replace the funds taken from the first IRA. This “robbing Peter to pay Paul” potentially could go on all year.

But this scheme came to a screeching halt in 2014. A U.S. Tax Court decision (Bobrow v. Commissioner) radically revised the one-per-12-month rollover rule, restricting rollovers to individuals rather than to IRAs. The IRS provided further guidance in Announcement 2014-32, clarifying that, irrespective of the number of IRAs that individuals have, they can roll over only one distribution per 12-month period. This restriction includes Traditional, Roth, SEP, and SIMPLE IRA.”

Hypothetically, if the IRS excluded Roth IRAs from the one-per-12-month IRA indirect rollover rule would people still be able game the system? The answer is yes as they could have 12 separate Roth IRA and use one to replace the other and still take garner the tax advantage from the Roth IRAs. Therefore, Roth IRAs needed to be included in the rule change.

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alan1 | Dec 24, 2022 | 877 posts since 2015

RickZ -- Please carefully read the entirety of your comment, and delete a good portion.

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RickZ | Dec 24, 2022 | 218 posts since 2010

YIKES!!! Thank you sir!

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racecar | Dec 24, 2022 | 616 posts since 2014

Thanks Alan1, RickZ, that clears it up. So with a Roth after 59.5 as far as the IRS is concerned you can take out as much as you want and spend it without penalty, but you're still limited to re-depositing it as a transfer yourself to just once per 365 days.

Ok, then that pretty much rules out GTE for me (it'd just be a small amount because the bulk of my IRA is elsewhere and not touchable for a couple years, and the $50 GTE charges for each occurance to do any ira transfer out would eat most of the better rate difference on a smaller amount). A shame, because GTE lets people take out 20% from a Roth IRA CD without any (GTE) penalty if over 59.5.... but if one wants to eventually move IRA funds elsewhere outside of GTE, like after maturity, they've got to pay GTE $50 for each transfer, or do it themselves but use up their only-once-per-year transfer opportunity that I'd rather not do unless absolutely necessary. While some FIs might charge a fee when you close an IRA account completely (you can always leave $1 in), I don't think any other FI other than GTE charges a fee, (let alone a $50 fee) to transfer IRA funds to another FI. That's steep.

Thanks everyone for clearing it up.

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alan1 | Dec 24, 2022 | 877 posts since 2015

racecar -- there are quite a few financial institutions that "charge a fee (let alone a $50 fee) to transfer IRA funds to another FI."

For example, the Fee Schedule of USAlliance Financial contains this item:

"IRA and HSA Rollover / Transfer to Another Institution $30.00"

see p. 2 of PDF at https://www.usalliance.org/hubfs/assets/documents/disclosures/usalliance-fee-schedule.pdf

And, as for "let alone a $50 fee", from Bank of America

IRAs
$50 each plan, each occurrence
Fee for transferring funds from Bank of America to another institution.

It's possible that there are regional variations in the Bank of America transfer fee.

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racecar | Dec 24, 2022 | 616 posts since 2014

Wow. Well thankfully most of the CUs where I've looked at their fee schedule doesn't have a fee for that (except GTE, I'm not a member of USAlliance), though I suppose they can always add one at any time.
(BofA, well.. along with their "high" 0.0% rates, that's normal for them)

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lou | Dec 24, 2022 | 1,004 posts since 2010

Racecar, If you do more than one 60-day rollover in a year for a Roth in which you're 59.5 and the Roth is more than 5 yrs old, what is the penalty or tax consequence? Unlike a traditional IRA there is none. So what's the problem? Why not do it? The text Alsn is having you read is for people who are either not 59.5 or have not owned the Roth for 5 years or longer and attempt to do more than one 60-day rollover in a year.

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MY2CENTSWORTH | Dec 24, 2022 | 436 posts since 2016

Give it up Lou...you are mistaken!

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lou | Dec 24, 2022 | 1,004 posts since 2010

The problem arises when you haven't satisfied those two conditions.Then all the earnings in the Roth becomes taxable and if you're less than 59.5 you would have to pay a penalty if you did more than one 60-day rollover in a year. So if I am wrong, I would ask Alan to tell me what the penalty or tax consequence would be if you broke the 60-day rule and you satisfied the two conditions. Reading the text without understanding the rules is also not very helpful.

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MY2CENTSWORTH | Dec 24, 2022 | 436 posts since 2016

Rollover is a Rollover, is a Rollover!!! Got it? Only one per twelve month period...age, type of IRA etc. make no difference!

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lou | Dec 24, 2022 | 1,004 posts since 2010

Only a monkey without a functioning brain would conclude this without taking into account how it would apply to your situation.

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Choice | Dec 24, 2022 | 937 posts since 2020

PS to RickZ excellent post…the real background story provides added light on the topic is the taxpayer in Bobrow did then what the irs regs permitted! And the irs didn’t like it and took the taxpayer to court to, in effect, challenge its own reg! Instead of going through the regulatory process to amend reg it went to court and prevailed. Absolute disgusting on the irs part but then the recent irs audit (in)action trumps that.

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lou | Dec 24, 2022 | 1,004 posts since 2010

I may be wrong but if you're 59.5 years of age and have had the Roth for at least 5 yrs, I don't think you have to worry about 60-day rollovers. You can take the money and the earnings out tax free with no penalty anytime you want. You may have a CD penalty but that's it.

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alan1 | Dec 24, 2022 | 877 posts since 2015

racecar -- please pay no attention to unsourced assertions re absence of "penalties or consequences". I think you're already familiar with the type of character who would encourage you to just "do it".

racecar, if you want to learn more about this, please carefully read the entirety of IRS Publications 590-A and 590-B. If after doing so, you have any questions, feel free to send me a private message and I'll respond as best I can. In light of the manner in which someone wants to keep going on this thread, it's time for me to bow out.

and best wishes for 2023

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lou | Dec 24, 2022 | 1,004 posts since 2010

Okay Alan, tell me what the penalty is if you do more than one 60-day rollover in a yr for a Roth if you're over 59.5 and you owned the Roth for more than 5 years. I will wait for an answer,

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lou | Dec 24, 2022 | 1,004 posts since 2010

The entire text of the two IRS publications does not contradict anything I have said. You just have to use your brain to see how it applies to your situation. Obviously it is referring to Roths where the owner is not 59.5 or the Roth is less than 5 years old. In those two situations there would be adverse consequences if you did more than one 60-day rollover in a year.

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IGR | Dec 24, 2022 | 580 posts since 2020

deleted

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flygirl56 | Dec 24, 2022 | 17 posts since 2022

1. don't know, good question, havent faced that myself yet
2. I don't know if it's the same now but I had Alliant send ira funds once and don't think they charged. But.. it took a while~~

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MY2CENTSWORTH | Dec 24, 2022 | 436 posts since 2016

racecar, if you care to get the correct information directly from the IRS there are two publications that will answer all your questions and even provide some examples. They are https://www.irs.gov/forms-pubs/about-publication-590-a for IRA contributions and https://www.irs.gov/forms-pubs/about-publication-590-b for distributions. In my experience many FI's charge a fee only when closing an IRA. Transfers, distributions/RMD's and rollovers have always been fee free for me. In your example what you are describing would be a trustee to trustee direct transfer and typically does not involve a fee, except as I mentioned, if you are closing out your account. There is a fair amount of record keeping and paperwork involved and it does take longer than I believe it should to transfer the funds.

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racecar | Dec 24, 2022 | 616 posts since 2014

My2c, lou, flygirl, thanks for the replies.
But still trying to figure out: Once you hit 59.5 (at least for a Roth), one can then take out as much as you want with no penalty from the IRS.

But are you still only allowed one indirect transfer a year, even after 59.5? Or can you do more than 1 a year if over 59.5? That's really what I'm asking.

(one is allowed to deposit only so much new money each year to an IRA, even after 59.5. But if just transferring your current IRA funds from Bank A to Bank B, if Bank A themselves sends it to Bank B, IRS lets you do it as much as you want. Or, you can take the money from Bank A yourself and deposit it at Bank B yourself--but IRS only lets you do it that way once a year. I'm just wondering, if after 59.5 you can do that more than once per year or not. Because GTE charges $50 to send IRA money to another bank each time, yes, even if not closing, so if still restricted by the IRS to just once a year even after 59.5 I'll probably avoid GTE, if one can do it more than once after 59.5 maybe I'll go with GTE...)
Thanks!

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lou | Dec 24, 2022 | 1,004 posts since 2010

Are we talking about a Roth IRA or a Traditional IRA?

If a Roth, it shouldn't matter how many times you do indirect transfers if you're 59.5 and the Roth IRA is at least 5 years old. Why? Because you are allowed to withdraw funds from a Roth as many times as you want without any tax consequence or penalty as long as you satisfy the two conditions previously mentioned. Under the circumstances I don't see why the one time a year 60-day rollover rules would apply to this situation.

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IGR | Dec 24, 2022 | 580 posts since 2020

That is one indecipherable mess out of Retirement Accounts and Retirement Age, Rollover and Transfer, Contribution and Distribution, Penalty and Tax, Qualified Distribution and Tax Free Withdrawal....
Not that I care, but if somebody does, I'd suggest to start again fresh.

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lou | Dec 24, 2022 | 1,004 posts since 2010

IGR, we are in complete agreement about this. What the IRS has done here is a travesty and why so many taxpayers are fed up with them.

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IGR | Dec 24, 2022 | 580 posts since 2020

In reality, it is not that complicated...when the subject is not generalized.
The specific and "simple" solution exists, where the single issue is identified.
From the inception of this thread, it is impossible to comprehend the issue + question!

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lou | Dec 24, 2022 | 1,004 posts since 2010

In the case of the 60-day rollovers or particularly direct transfers for IRA accounts, the process for doing this is unusually burdensome and ridiculous. The IRS rules are a travesty and should be revised posthaste, but because this is the IRS, a huge govt bureaucracy, creating rational rules that are easy for ordinary taxpayers to comply with is not their priority.

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