IRA Checkwriting and Transfers

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  • #4862
    kaneohe
    Participant

    If you have checkwriting on an IRA and you write a check to a new custodian for opening a new IRA account there, does that count as a direct transfer just like if the custodians do it themselves?

    #4865
    Alan S.
    Participant

    Kaneohe, this should meet the IRS definition of a direct transfer since the IRA owner cannot cash the check.

    However, from a practical standpoint, it appears that most custodians place a number of restrictions on IRA check writing including a firm statement that they will issue a 1099R on all checks. That increases the chance of a 1099R/5498 mismatch. Some restrict the checks to those over 59.5, or do not allow check writing on inherited IRAs or Roth IRAs. Withholding is handled differently with one firm requiring it be declined and another stating they will withhold the 10% by a separate distribution unless it has been declined. Some will not allow the IRA to be closed with an owner check.

    Therefore, it’s necessary to carefully review any agreement you sign with your custodian regarding check writing, since these are not standard and there could be unanticipated restrictions included.

    #4867
    kaneohe
    Participant

    Thanks, Alan………..lots to think about there.

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