Retirement Savings and Benefits
Questions and comments about IRAs, 401k accounts, social security, and other forms of retirement savings and benefits.
IRA rollover
Posted by: wanttoknow, October 11, 2017 03:53AM
I want to roll over (not direct transfer) $500,000 of my non-spousal inherited T-IRA from one mutual fund company to another. After I take distribution of the $500,000 can I put it into the new T-IRA in separate batches, as long as that gets done within 60 days of receiving the distribution?

Also, am I correct in thinking that my doing this rollover doesn’t affect my ability to do trustee-to-trustee transfers?

Re: IRA rollover
Posted by: kaneohe, October 11, 2017 01:36PM
I believe Alan S. has stressed that non-spousal inherited IRAs should NOT be rolled over ......only use direct transfers e.g. see his response here
[fairmark.com]

also see item 6 here:
[www.plannersearch.org]

Re: IRA rollover
Posted by: wanttoknow, October 11, 2017 05:53PM
Holy cow, kaneohe! You just saved me a huge tax bill! I had no idea. Thank you!

Re: IRA rollover
Posted by: Alan S., October 11, 2017 06:04PM
Yes, Kaneohe is correct. A non spouse inherited IRA distribution can never be rolled over, so receiving a distribution check amounts to an irrevocable taxable event.

Good thing you checked. Taxes on 500k would be a disaster, and good chance the custodian would not warn you about this rule.

Since this is the most costly and common error, there was proposed legislation a couple of years ago to change the tax code to allow 60 day rollovers for non spouse inherited IRAs, however it never made it's way into a actual bill.


Re: IRA rollover
Posted by: Drewremedy, October 13, 2017 11:31AM
One of my skilled tax attorney - investor friends is an advocate of careful shifting of IRA to Roth format in modest steps with attention to tax brackets and surcharges as he feels a Roth for many is a better long term bucket ...but that's not your question ...and it makes sense to do some math homework first.

Re: IRA rollover
Posted by: wanttoknow, October 13, 2017 06:21PM
Alan,

I am just curious. What was the rationale for not allowing rollovers of non-spouse inherited IRAs?

And you are right. I was speaking with the "receiving" custodian about my rollover, and she never warned me against it.

Re: IRA rollover
Posted by: Alan S., October 13, 2017 09:49PM
Good question, but I have no idea.

Re: IRA rollover
Posted by: kaneohe, October 14, 2017 01:41AM
[www.irs.gov]

Bit confused by this one. IRA to IRA transfer..,..
check sent to owner but FBO owner's IRA. If source were a "Retirement Plan", attached link suggests this would be a Direct Rollover. However since source is an IRA, attached link does not consider it a direct rollover; is it considered TTEE-TTEE even tho check physically comes to owner but owner can not cash it?

Re: IRA rollover
Posted by: Alan S., October 14, 2017 02:55AM
Yes, an IRA check made out to the owner's (or for that matter the beneficiary's) IRA custodian FBO owner is a non reportable transfer.

Therefore, this method can be used by a non spouse IRA beneficiary to change custodians since it is a transfer and not a rollover.

Note that the IRS link you posted totally ignore beneficiaries. In the list of distributions that are not eligible for rollover it does not even list a distribution to a non spouse beneficiary. So that page is not as comprehensive as it should be.

Re: IRA rollover
Posted by: wanttoknow, October 14, 2017 05:02AM
Alan & Kaneohe,

Kaneohe described the situation of the original custodian sending TO THE OWNER a check made out to the new custodian.

However, the IRS text about “direct rollover” or “trustee-to-trustee transfer” says nothing about a check going TO THE OWNER, and Alan also said nothing about that.

That is the way I would like to handle my situation (non-spousal inherited IRA): for me to get a check made out to the new custodian FBO myself. Would I then have 60 days in which to establish the new IRA?

Re: IRA rollover
Posted by: Drewremedy, October 14, 2017 11:40AM
I'm not sure why you want a check made out to new custodian FBO yourself....yes it's legal but what's the purpose of that or the 60 day max window ? IF you make a mistake and delay 1 day too long or run into administrative problems or have a health emergency which diverts your attention....for $500,000 why not do it a safer way ? For that matter the investment opportunity lost in say an 18% up market prorated for 1/6 year is $15,000 to delay

Re: IRA rollover
Posted by: kaneohe, October 14, 2017 01:34PM
I'm wondering if a check made out to IRA custodian FBO beneficiary has that 60 day time limit. If beneficiary can't cash the check to use the funds, why would IRS care ?

Re: IRA rollover
Posted by: Alan S., October 14, 2017 08:43PM
Yes, the 60 day time limit is immaterial because that only applies to rollovers. A non spouse IRA beneficiary cannot do a rollover.

The following link explains direct IRA transfers, with some tips at the end to carefully insure that the transaction is not reported as taxable.

[www.retirementdictionary.com]

Also, the check payee should not just include "FBO you", it should include the name of the inherited IRA custodian and the FBO should indicate that the receiving account is an inherited IRA.

Eg. "Vanguard Brokerage Services FBO want to know inherited IRA".

If the check indicated just "FBO want to know" there is a risk it might be deposited into the wrong account. Do not take any chances with this transaction due to the dire consequences.


Re: IRA rollover
Posted by: wanttoknow, October 14, 2017 09:10PM
Thanks so much, Alan.

The receiving custodian's Trustee-to-Trustee transfer form says the check should be payable to "Calvert Retirement Plans", and the registration on my Vanguard IRA is in the form of "Wanttoknow Benef Deceased Brother', so I assume the check should be made out to "Calvert Retirement Plans FBO Wanttoknow Benef Deceased Brother".

I'm not sure that either custodian has a form to handle this, but we'll see.

I assume there is no limit of one per 12 months.

Drewremedy, thanks for your cautions. I'll keep them in mind. It's a complicated situation involving more than I've discussed here.

Re: IRA rollover
Posted by: Drewremedy, October 15, 2017 01:31AM
I'll take Alan's word for it that a transfer is not subject to a 60 day drop off the cliff problem as would apply to a rollover in other situations...But I'm still uncomfortable at having 500k on a zero return " Float " any too long ,

I've had decent safe experience with Vanguard and moving sums and they have some good products and some not so good ones ....and as far as I recall, since they stand to benefit from the new funds they will do most of the legwork to go get them....that's not to say the current holder will not be a tad slow to release funds ...

Re: IRA rollover
Posted by: wanttoknow, October 15, 2017 04:53AM
Drewremedy,

The funds are going from Vanguard to Calvert.


Re: IRA rollover
Posted by: Alan S., October 15, 2017 06:58PM
The number of direct transfers is unlimited.

As for the payee, "Calvert Retirement plans" by itself is taking a chance, although much less risk if your only open account there is the inherited IRA.

A better payee would show "Calvert Retirement Plans FBO wanttoknow inherited IRA", but that's not critical, only recommended.

Re: IRA rollover
Posted by: wanttoknow, October 16, 2017 05:10AM
Thanks, Alan.

What I suggested in my Oct. 14 message was
"Calvert Retirement Plans FBO Wanttoknow Benef Deceased Brother"--following the Vanguard format.

Re: IRA rollover
Posted by: Alan S., October 16, 2017 05:06PM
That should be fine. Expect longer payee formats to result in abbreviations since the number of characters will be limited.



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