Retirement Savings and Benefits
Questions and comments about IRAs, 401k accounts, social security, and other forms of retirement savings and benefits.
2 IRA transfer questions
Posted by: wanttoknow, October 25, 2017 09:13PM
I am transferring part of my T-IRA with custodian A to custodian B.

Custodian B's "Transfer of Assets" form says "If you are over age 70 1/2, you are responsible for distributing any required minimum distribution amounts from your current retirement plan account (excluding Roth IRAs) in advance of the transfer or rollover."

Am I really required to take the RMD before the transfer even though after the transfer I will still have sufficient money market funds in the "A" IRA to cover the RMD?

Also, Custodian B's transfer form is asking whether the IRA is a traditional IRA or rollover IRA.

The IRA came mostly from my brother's T-IRA which I inherited in 2003. However, in 2010-12 I transferred into it an IRA into which the 401(k) I had also inherited from my brother had been transferred.

Does that mean my IRA is a rollover IRA?

Re: 2 IRA transfer questions
Posted by: Benn, October 27, 2017 12:02AM
It looks like custodian B is enforcing a hyper strictness that is not required. Assuming that you make a direct transfer from one institution to another from a traditional IRA to another traditional IRA, you may take the RMD later in the year. Taking the RMD before the transfer would only be required in the case of a rollover from a 401(k) or other qualified plan to an IRA. But for a direct IRA to IRA transfer no distribution occurs. The transfer must be sent from custodian A to custodian B with the payee as the same account title you have at custodian A for your inherited IRA. Also be sure to address the fact that your account is an inherited IRA if the form has a question in this regard.

Since custodian B has expressed this concern you should be completely certain that they are recording the transfer as a non-reportable event. For a direct transfer they must NOT issue form 5498 next year with an entry in box 2, "rollover contributions". That would cause you a great difficulty, especially since this is an inherited IRA. Custodian A should likewise not send form 1099-R for the transfer. But you should receive form 1099-R for the amounts of any RMDs you do receive.

As to the question of whether it is a rollover IRA, that is not be for an inherited IRA. Rollover status needs to be preserved only if the owner of an individual IRA may seek to roll the IRA into a qualified plan, and the plan requires tracability showing that the account previously came from a qualified plan. You can't roll into a 401(k) with an inherited IRA. Another reason for preserving rollover status is to preserve banktuptcy protection in certain states, also not relevant for an inherited IRA.


Re: 2 IRA transfer questions
Posted by: Alan S., October 27, 2017 02:05AM
Benn is correct.

Custodian B needs to review and modify their forms. With respect to the paragraph you quoted, it does not even apply to a non spouse inherited IRA since there is no rollover allowed and RMDs do NOT have to be distributed prior to a direct transfer to a new custodian. Further, whether it is a rollover IRA or not is immaterial for an inherited IRA.

The custodian might want to consider a separate paragraph for non spouse inherited IRA transfers. They would not need a new transfer form for them, just a paragraph added to the current form applicable to non spouse inherited IRAs.

Re: 2 IRA transfer questions
Posted by: wanttoknow, October 27, 2017 04:08PM
Thanks so much, Benn and Alan.

Custodian "B" has already goofed in a couple of ways not connected to the IRA transfer per se, so I really appreciate your warnings about the 5498 and 1099-R. I hope that if a form is issued incorrectly that it can be "cancelled", as I don't have much confidence that bringing it up now would have an effect at tax time.



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