401k Rollover question

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401k Rollover question

Postby mcse37 » Wed Aug 08, 2012 4:39 pm

I want to rollover my 401K from Fidelity to my traditional IRA with Vanguard. I called Fidelity and was told that they would not rollover the funds directly to Vanguard, but would instead send me a check. Is this correct? I really don't want to handle the money.

I'm assuming that as long as I get it to Vanguard within 60 days that I won't cause a taxable event?
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Re: 401k Rollover question

Postby damjam » Wed Aug 08, 2012 4:45 pm

This just happened to me (different 401(k) provider).

Just have the check made out to "Vanguard Fiduciary Trust Company, FBO (Owner's Name)."

When you receive the check you will put in the endorsement area "Direct Rollover + Fund Number-Account Number."

As soon as I got the check from the 401(k) provider, I sent the check to Vanguard overnight. It was deposited the next day.

As you say, as long as the process is completed in 60 days your golden.
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Re: 401k Rollover question

Postby Alskar » Thu Aug 09, 2012 9:40 pm

I just rollover from Fidelity to Vanguard earlier this week. Personally, I would NEVER want to receive a rollover check. In my experience, and I have plenty of it, the rollover happens faster and the IRS asks fewer questions, if the check goes directly from the one account (Fidelity in this example) directly to the other account (Vanguard in this example). I made the mistake of having a check sent to me once. Never again. Even though I got it rolled over in just a few days, the IRS asked all kinds of questions, that I spent the next year answering. Like I said...never again!

When I opened the account at Vanguard (online, 'cuz Vanguard Concierge Services is useless) I received these instructions:

"To complete the process, you'll need to:
  • Contact your financial institution and provide your Vanguard account number, which is xxxxxxxxxxx
  • Instruct the institution to make the rollover check payable to: Vanguard Fiduciary Trust Company, Custodian of "Your Name Here"
  • Make sure the check includes your Vanguard account number
  • Advise the institution to mail the check to:
Vanguard
PO Box 1110
Valley Forge, PA 19482-1110"

I filled out the rollover paperwork using the above information (address, destination account number, and so forth) and dropped it off at my local Fidelity office about two weeks ago. The money arrived at Vanguard this week.

When you open the Vanguard account, you'll be asked for investment instructions, so the fund number is not required before the account number. If you're rolling over into an existing account (so the investment instructions are available) it won't hurt to have the fund number in front of the account number.

When the funds arrive, Vanguard will invest them per your instructions.
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Re: 401k Rollover question

Postby rustymutt » Thu Aug 09, 2012 9:45 pm

Yes, this is how they did that with me in 2009. What you need to make sure of, is that Fidelity knows you're rolling those funds over to Vanguard. You receive the check, and forward it signed over to Vanguard for deposit into your IRA account. You should also let Vanguard know what to expect. I did it, and had no issues. You have a set time to do this type of rollover. I don't know what the time limit is.
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Re: 401k Rollover question

Postby damjam » Thu Aug 09, 2012 9:50 pm

Alskar wrote:I just rollover from Fidelity to Vanguard earlier this week. Personally, I would NEVER want to receive a rollover check. In my experience, and I have plenty of it, the rollover happens faster and the IRS asks fewer questions, if the check goes directly from the one account (Fidelity in this example) directly to the other account (Vanguard in this example). I made the mistake of having a check sent to me once. Never again. Even though I got it rolled over in just a few days, the IRS asked all kinds of questions, that I spent the next year answering. Like I said...never again!

When I opened the account at Vanguard (online, 'cuz Vanguard Concierge Services is useless) I received these instructions:

"To complete the process, you'll need to:
  • Contact your financial institution and provide your Vanguard account number, which is xxxxxxxxxxx
  • Instruct the institution to make the rollover check payable to: Vanguard Fiduciary Trust Company, Custodian of "Your Name Here"
  • Make sure the check includes your Vanguard account number
  • Advise the institution to mail the check to:
Vanguard
PO Box 1110
Valley Forge, PA 19482-1110"

When you open the Vanguard account, you'll be asked for investment instructions, so the fund number is not required before the account number. If you're rolling over into an existing account (so the investment instructions are available) it won't hurt to have the fund number in front of the account number.

When the funds arrive, Vanguard will invest them per your instructions.

I was told by my 401k provider in no uncertain terms that the would not do a trustee to trustee transfer. When I called Vanguard concierge services they told me that is not unusual. I followed Vanguard's instructions and so far so good.

Besides if the check is made out to Vanguard, what difference does it make if the check is mailed to you first and then forwarded to Vanguard vs. the check being mailed directly to Vanguard? I wasn't suggesting the OP have a check made out to him from the 401k provider, and then the OP cut a new check to Vanguard.

I'm not arguing that you did not experience a problem. It seems you did. I hope everything worked out in the end and I hope my transaction is OK as well.
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Re: 401k Rollover question

Postby Alskar » Thu Aug 09, 2012 10:40 pm

damjam wrote:I was told by my 401k provider in no uncertain terms that the would not do a trustee to trustee transfer. When I called Vanguard concierge services they told me that is not unusual. I followed Vanguard's instructions and so far so good.

Besides if the check is made out to Vanguard, what difference does it make if the check is mailed to you first and then forwarded to Vanguard vs. the check being mailed directly to Vanguard? I wasn't suggesting the OP have a check made out to him from the 401k provider, and then the OP cut a new check to Vanguard.

I'm not arguing that you did not experience a problem. It seems you did. I hope everything worked out in the end and I hope my transaction is OK as well.

I'm in high-tech. High-tech jobs seem to only last 2-5 years. I've rolled over 401(k)'s at least 12 times in my career. It is true that some plans, particularly from small TPA's, will not do direct rollovers. However, the OP was asking about a rollover from a Fidelity 401(k) plan directly to a Vanguard Traditional Rollover IRA, and I know for sure that direct rollovers are possible in that circumstance as I just did it.

The disadvantage of having the check sent to you instead of directly to Vanguard, is that it adds more delay into the processes. More delay means that your money is out of the market longer. If the market rises in the time you're out of the market, you'll lose money. If it drops, you'll make money. After a disastrous rollover from a Merrill Lynch 401(k) to Fidelity a few years ago, in which I lost $5K, I am no longer tolerant of delays.

I never did figure out what had triggered the IRS to think there was an issue with my rollover. It was a 401(k) to 401(k) rollover so that might have had something to do with it. In any case, they REALLY wanted me to pay taxes on the money I rolled over, the 10% penalty, AND interest. Eventually, they got the paperwork they needed from my new employer and the problem went away.

For whatever my opinion is worth, I take everything Vanguard Concierge Services says with a grain of salt. Just two weeks ago, Concierge Services told me that rolling over a Roth 401(k) plan to a Roth IRA was "highly unusual". They were also unable to retrieve the application I started online so they could assist me with this "highly unusual" transaction. I figured it out on my own. No big deal.

I am a "Premium Services" client at Fidelity. Maybe that's why I was able to do a direct rollover?
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Re: 401k Rollover question

Postby Alan S. » Thu Aug 09, 2012 11:08 pm

Technically, if the check is made out to the new plan FBO you, it's a direct rollover whether the check is mailed to you to forward to the new custodian or if the funds are transferred directly between trustees. This means that your 1099R will be coded G for direct rollover and there will be no 20% withholding taken out. Most plans prefer to mail the check to the participant to forward.

The term "direct rollover" reflects a hybrid situation. The "direct" part refers to the fact that the check is made to the new custodian, but the rollover part refers to your need to report the rollover on Form 1040 in the same method as if you did an indirect 60 day rollover.

The IRS frequently questions plan to plan transfers because there is no 5498 issued confirming receipt of the funds as there is when an IRA receives the funds. The IRS apparently does not feel the G code on the 1099R is sufficient indication that you did not somehow receive the check and deposit it into a taxable account. Same for an IRS to QRP rollover. These transactions should be reflected by an explanatory statement with your tax return. Then hope the IRS reads the explanation because they frequently don't. But it does improve your chance to avoid an annoying inquiry from the IRS.

With respect to the "unusual" rollover from a Roth 401k to a Roth IRA, while these rollovers have only been around for 5 years now and are still relatively rare, the CSR was probably green enough not to have ever handled one of these.
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Re: 401k Rollover question

Postby damjam » Thu Aug 09, 2012 11:16 pm

Alan S. wrote:Technically, if the check is made out to the new plan FBO you, it's a direct rollover whether the check is mailed to you to forward to the new custodian or if the funds are transferred directly between trustees. This means that your 1099R will be coded G for direct rollover and there will be no 20% withholding taken out. Most plans prefer to mail the check to the participant to forward.

The term "direct rollover" reflects a hybrid situation. The "direct" part refers to the fact that the check is made to the new custodian, but the rollover part refers to your need to report the rollover on Form 1040 in the same method as if you did an indirect 60 day rollover.

The IRS frequently questions plan to plan transfers because there is no 5498 issued confirming receipt of the funds as there is when an IRA receives the funds. The IRS apparently does not feel the G code on the 1099R is sufficient indication that you did not somehow receive the check and deposit it into a taxable account. Same for an IRS to QRP rollover. These transactions should be reflected by an explanatory statement with your tax return. Then hope the IRS reads the explanation because they frequently don't. But it does improve your chance to avoid an annoying inquiry from the IRS.

With respect to the "unusual" rollover from a Roth 401k to a Roth IRA, while these rollovers have only been around for 5 years now and are still relatively rare, the CSR was probably green enough not to have ever handled one of these.


Alan,

Would the amount of the rollover be indicated on line 15a (IRA distributions) of the 1040, with STMT noted next to it, then a statement attached?

Thanks,
damjam
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Re: 401k Rollover question

Postby Alan S. » Thu Aug 09, 2012 11:38 pm

I
damjam wrote:
Alan S. wrote:Technically, if the check is made out to the new plan FBO you, it's a direct rollover whether the check is mailed to you to forward to the new custodian or if the funds are transferred directly between trustees. This means that your 1099R will be coded G for direct rollover and there will be no 20% withholding taken out. Most plans prefer to mail the check to the participant to forward.

The term "direct rollover" reflects a hybrid situation. The "direct" part refers to the fact that the check is made to the new custodian, but the rollover part refers to your need to report the rollover on Form 1040 in the same method as if you did an indirect 60 day rollover.

The IRS frequently questions plan to plan transfers because there is no 5498 issued confirming receipt of the funds as there is when an IRA receives the funds. The IRS apparently does not feel the G code on the 1099R is sufficient indication that you did not somehow receive the check and deposit it into a taxable account. Same for an IRS to QRP rollover. These transactions should be reflected by an explanatory statement with your tax return. Then hope the IRS reads the explanation because they frequently don't. But it does improve your chance to avoid an annoying inquiry from the IRS.

With respect to the "unusual" rollover from a Roth 401k to a Roth IRA, while these rollovers have only been around for 5 years now and are still relatively rare, the CSR was probably green enough not to have ever handled one of these.


Alan,

Would the amount of the rollover be indicated on line 15a (IRA distributions) of the 1040, with STMT noted next to it, then a statement attached?

Thanks,
damjam


Yes, for an IRA to QRP rollover. 15a would show the gross amount with "rollover" entered next to 15b and -0- on 15b. If your tax software program allows you to enter something as long as "rollover per statement" next to 15b, that would at least alert the IRS to look for the statement which could appear in a different place depending on how you file.
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Re: 401k Rollover question

Postby Default User BR » Fri Aug 10, 2012 1:32 pm

Alskar wrote:I just rollover from Fidelity to Vanguard earlier this week. Personally, I would NEVER want to receive a rollover check. In my experience, and I have plenty of it, the rollover happens faster and the IRS asks fewer questions, if the check goes directly from the one account (Fidelity in this example) directly to the other account (Vanguard in this example).

There's two different scenarios:

1: A check is made out to the receiving institution, with an FBO designation in your name, that is physically sent to you, which you must then forward to the new custodian. This is a direct rollover, just as if the transfer had been custodian-to-custodian. Some custodians (like MyMegaCorp) will only do a direct rollover this way for security reasons.

2. A check is made out in your name, which you then deposit in the new IRA. This is an indirect rollover. If the distribution was taxable in part or whole, the distributing custodian should withhold 20% for taxes. It this is not made up from other sources, then it is a distribution to you and subject to tax and penalty.

I'm not sure what "questions" the IRS asked, but had you filled out the forms correctly then there should have been little uncertainty.


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Re: 401k Rollover question

Postby Alskar » Mon Aug 13, 2012 12:42 pm

Default User BR wrote:I'm not sure what "questions" the IRS asked, but had you filled out the forms correctly then there should have been little uncertainty.

I'm quite familiar with the difference between direct and indirect rollovers. The issue I had was with a direct rollover that was sent to my address. I had filled out all of the paperwork correctly. I suspect, but was never able to confirm, that LPL (my brokerage firm at the time...horrible story don't ask), didn't report the rollover correctly to the IRS. By the time the IRS started asking questions, I had rolled all of my assets into an account at Fidelity and my former employer had been bought by another company, further complicating the paper-trail.

The IRS eventually got what they needed. I paid no penalty. It all turned out fine in the end.

In any case, in the past 10 years I haven't had a case where the 401(k) plan required that the check be sent to the employee. It was more common years ago, but I haven't run into that lately. Perhaps, this is because I don't ask. I just fill out the paperwork, giving the address at Vanguard, Fidelity or wherever as my address. There's usually a place to put the account number. The check gets cut, and is sent to the receiving institution directly. This cuts 2-3 days off the transit time.
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Re: 401k Rollover question

Postby Default User BR » Mon Aug 13, 2012 8:03 pm

Alskar wrote:In any case, in the past 10 years I haven't had a case where the 401(k) plan required that the check be sent to the employee.

MyMegaCorp does that. It's a security measure.


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