Direct Transfer Warning

  |     |   245 posts since 2011

In January, I had three taxable CDs that needed attention, and 3 IRA CDs between myself and my wife.

Taxable CD movement always takes some hand holding, but usually gets done within a week.

Doing DIRECT TRANSFERS (trustee-to-trustee) can get completed within a week or two, or they can drag on.

First, make sure that the existing IRA custodian does not automatically do a rollover at their firm.  The CD funds at maturity need to be liquid in an IRA money market or IRA savings account.

Seems the new trustee (the one to whom you send the transfer paperwork) does not always follow up to see if the other institution ever got the paperwork, and why, after several weeks - that there still is no check.

I call my new trustee after three weeks.  I had checked the accounts at the other institution, and there was NO activity.  So I called the new trustee.  Customer Service, in some cases, cannot help if it is an IRA.  In many institutions, it is the IRA department that drives the boat.  I got a Supervisor.  "We still have not heard back from the other Firm" was their standard answer to my inquiry.  "It's been three weeks, ..... what are you doing about it?"

"Nothing!"  "We don't have the time or resources to check up on the other firms".

This involved a rather large sum of money, so I was not accepting that answer.  "How do you even know if they ever got the paperwork for the transfer, or that they are working on it??" -  the new trustee still was not wanting to take ownership of the transfer request.

"Obviously you do not understand what FIDUCIARY RESPONSIBILITY means - Get me your boss".  There were no bosses available, and the Supervisor promised me that she would personally contact the other firms and determine the road blocks.

Well, it turns out that somehow they had never actually made contact with the other firm.  They still had their original paperwork with no audit trail that it ever went out.  Had to wait another three weeks, but finally got it done.

Moral of the story - IF you are doing DIRECT TRANSFERS of IRA assets, you should normally see some activity by the old holding institution before three weeks have passes.  If not - - do NOT attempt to resolve it yourself at the holding firm.  Any direct contact about moving IRA funds out can be construed as asking for a distribution, and those become taxable events.  Always follow up with the NEW CUSTODIAN and insist that they re-establish contact to resolve any road blocks.

I have seen some posts where people have actually gotten funds sent out by contacting the old existing custodian.  They assume that since they do not take control or ownership of the funds, that it will still be considered as a trustee-to-trustee direct transfer.  THAT MAY NOT ALWAYS BE THE CASE.  If there is a "back office", they may not code the transfer as a transfer but rather as a Distributions.  Why??  Because unless they have a document from the new receiving firm that the funds are going into an established IRA account at the receiving end, then the back office cannot tell the IRS that this is in fact not ending up in a taxable account at the receiving firm.  If it gets coded as a distribution, it will be between you and the IRS to clear it up.

My transfer, which normally takes two or three weeks finally got resolved after SIX WEEKS.  You still must manage the process, but you need to do it via the NEW trustee.

  |     |   73 posts since 2010
Excellent advice. And, yes, some bank/CU employees don't understand the difference between a distribution and a trustee-to-trustee transfer. 
  |     |   33 posts since 2011
When I make one of these trustee to trustee transfers in the same town, I have been having the new institution fill out the paperwork and walk that paperwork over to the old institution. That way I get a personal rep to sit down with me and go over the transaction. Sometimes, depending on the institution, I may get a check made out to the new institution right on the spot and hand carry it with the paperwork back the new institution for a quick deposit and all is finished.

If the old institution has an out of town IRA dept, I still might have to wait a few weeks for it to transfer, but I know that the paperwork was received and I have a personal rep to chat with about the progress on the transfer.

Any more, I do not transfer an IRA to an institution that cannot process the IRA right away with the walk through process. I do not want to lose interest in the transfer process if I can help it. Caution: Only do this walk-thru method if you understand that you never want the transfer check in your name (should be made out to new institution) and that the paperwork needs to indicate a trustee to trustee transfer code. Just ask each institution if you can be the delivery person in the process.
  |     |   245 posts since 2011
good points.  But I want to be clear here ...... (my opinion) EVEN if the check is made out to the other institution, you MUST make sure the existing (old) custodian receives the paperwork from the new custodian that they are accepting the funds as IRA custodian.  If you cannot produce that document and something goes wrong (if EITHER institution codes it wrong), then I think you will have major problems with the IRS.  That signed document of the new custodian is the trump card with the IRS to make it clear that the movement was a transfer and NOT a distribution.

Good points about hand walking the paperwork and check.  I have noticed that more and more institutions will accept a fax now, in lieu of wet ink, so the process seems to go pretty well and results in a mailed check in a week or two.  I usually am a yield hunter, so .5% to 1% difference in yield is more important to me than a few weeks of no interest.  But since the recent IRS ruling on IRA movements, I make sure to have a copy of the paperwork that instructs the new firm to be the NEW custodian and they make the transfer happen.

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