Clarification of IRA transfer/rollover rules.

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protagonist
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Clarification of IRA transfer/rollover rules.

Post by protagonist » Thu May 24, 2018 5:25 pm

This is my understanding for complete or partial transfers of traditional IRA funds from one institution to another:

1. If it is handled completely by the banks IRA to IRA and money never touches your hands, it is not taxed and there are no fees involved other than those imposed by the financial institutions.
2. If you receive a check from the first institution, deposit it in a core (taxable) account in the second institution, and then open an IRA at the second institution and move all the funds from the core account into the IRA, this is a "rollover". You have 60 days to do this from when the process started....if it takes any longer you must pay tax on the funds. This can only be done once every 365 days or you have to pay tax on the funds.
3. I think if the funds are placed into your core (taxable) account in the first institution and you have them wired to your core account in the second institution by the first institution, and then open an IRA in the second institution and move all the funds from the core account to the IRA , rule #2 above applies (rollover), just as if you received a check, though the money never touched your hands.

Please let me know if this is all correct.

This link , if I read it correctly, seems to contradict the above, stating: " For a traditional IRA, if you have a check made out to you and transfer the funds to the new institution yourself, you will be subject to 20 percent withholding on the amount of the transfer." https://finance.zacks.com/transfer-ira- ... -4023.html

retiredjg
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Re: Clarification of IRA transfer/rollover rules.

Post by retiredjg » Thu May 24, 2018 5:53 pm

I do not believe that Zack's is correct on this.

My reading of the attached document is that they will withhold 10% of an IRA unless you opt out or pick a different percentage.

The 20% mandatory withholding is on a work plan such as a 401k and you cannot opt out of that withholding if you do a 60 day rollover (if you get the money in a form that you can deposit the check and spend the money).

https://www.irs.gov/retirement-plans/pl ... tributions

retiredjg
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Re: Clarification of IRA transfer/rollover rules.

Post by retiredjg » Thu May 24, 2018 6:08 pm

It seems like you are going to a lot of unnecessary trouble - essentially moving the money 3 times instead of once. Is there a reason for this?
Last edited by retiredjg on Thu May 24, 2018 6:29 pm, edited 1 time in total.

protagonist
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Re: Clarification of IRA transfer/rollover rules.

Post by protagonist » Thu May 24, 2018 6:22 pm

retiredjg wrote:
Thu May 24, 2018 6:08 pm
It seems like you are going to a lot of unnecessary trouble - essentially moving the money 3 times instead of once. Is that a reason for this?
Apparently yes, if I was given correct info. The receiving credit union does not accept a direct transfer into an IRA because they said they cannot open an IRA account until the funds are present in the institution. Thus, I assume due to primitive technology or whatever, one cannot transfer funds into a non-existent account. Hopefully they will accept a wire to an existent core account (since I had to open a core account there when I joined), but I don't know if that would be treated as a rollover or direct transfer by the IRS. My guess would be rollover- one per year allowed. In the past I have always had funds transferred directly between IRAs.

I assumed Zacks was wrong re: their assertion as well- I didn't see it in other links- but given the gravity of an error I wanted to confirm here first.
Last edited by protagonist on Thu May 24, 2018 6:27 pm, edited 1 time in total.

ResearchMed
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Re: Clarification of IRA transfer/rollover rules.

Post by ResearchMed » Thu May 24, 2018 6:26 pm

Have the check made out to "<the institution> FBO <your name>".
[FBO = For Benefit Of]

Then deposit the check without taking possession of any of the money.

Also, when taking a check from an Employer plan with the required withholding, one can still deposit the full amount into the new IRA, using cash to replace the withholding.
It will all even out at the end of the year when taxes are tallied up.
Obviously, this would then be a "once a year" type, because not all of the money was directly transferred.

RM
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protagonist
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Re: Clarification of IRA transfer/rollover rules.

Post by protagonist » Thu May 24, 2018 6:30 pm

ResearchMed wrote:
Thu May 24, 2018 6:26 pm
Have the check made out to "<the institution> FBO <your name>".
[FBO = For Benefit Of]

Then deposit the check without taking possession of any of the money.

Also, when taking a check from an Employer plan with the required withholding, one can still deposit the full amount into the new IRA, using cash to replace the withholding.
It will all even out at the end of the year when taxes are tallied up.
Obviously, this would then be a "once a year" type, because not all of the money was directly transferred.

RM
Thanks!

If I do that ("institution FBO my name") , are you saying it would not be subject to the 60 day, once per year rule?
And are you certain?

ResearchMed
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Re: Clarification of IRA transfer/rollover rules.

Post by ResearchMed » Thu May 24, 2018 6:36 pm

protagonist wrote:
Thu May 24, 2018 6:30 pm
ResearchMed wrote:
Thu May 24, 2018 6:26 pm
Have the check made out to "<the institution> FBO <your name>".
[FBO = For Benefit Of]

Then deposit the check without taking possession of any of the money.

Also, when taking a check from an Employer plan with the required withholding, one can still deposit the full amount into the new IRA, using cash to replace the withholding.
It will all even out at the end of the year when taxes are tallied up.
Obviously, this would then be a "once a year" type, because not all of the money was directly transferred.

RM
Thanks!

If I do that ("institution FBO my name") , are you saying it would not be subject to the 60 day, once per year rule?
And are you certain?
Well, I'll give you a refund of my fee if I'm wrong...

Seriously, that is "my understanding", because one is *not* "taking possession" of the money, and one "can't" do so (unless a bank mishandles things).

But *NO*, I am not certain, and even if I was, I'm not qualified to give that assurance.

And unfortunately, I can't recollect just where I read it, when I was seriously looking into such things.

Could you open the IRA and make a small IRA deposit (are you eligible?), and then the account is "there"?

RM
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retiredjg
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Re: Clarification of IRA transfer/rollover rules.

Post by retiredjg » Thu May 24, 2018 6:40 pm

protagonist wrote:
Thu May 24, 2018 6:22 pm
Apparently yes, if I was given correct info. The receiving credit union does not accept a direct transfer into an IRA because they said they cannot open an IRA account until the funds are present in the institution. Thus, I assume due to primitive technology or whatever, one cannot transfer funds into a non-existent account. Hopefully they will accept a wire to an existent core account (since I had to open a core account there when I joined), but I don't know if that would be treated as a rollover or direct transfer by the IRS. My guess would be rollover- one per year allowed. In the past I have always had funds transferred directly between IRAs.
It sounds like a 60 day rollover to me because you could actually spend the money before it gets put into the new Roth IRA. I don't think wiring changes anything as far as that goes.

I would NOT do the FBO in this case because I don't think it will change anything. As soon as the money goes from first institution Roth IRA to first institution taxable account, it is a 60 day rollover, not a trustee to trustee transfer.

Can you open a Roth IRA for $10 at the new credit union and then to a trustee to trustee transfer?

protagonist
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Re: Clarification of IRA transfer/rollover rules.

Post by protagonist » Thu May 24, 2018 7:21 pm

retiredjg wrote:
Thu May 24, 2018 6:40 pm
protagonist wrote:
Thu May 24, 2018 6:22 pm
Apparently yes, if I was given correct info. The receiving credit union does not accept a direct transfer into an IRA because they said they cannot open an IRA account until the funds are present in the institution. Thus, I assume due to primitive technology or whatever, one cannot transfer funds into a non-existent account. Hopefully they will accept a wire to an existent core account (since I had to open a core account there when I joined), but I don't know if that would be treated as a rollover or direct transfer by the IRS. My guess would be rollover- one per year allowed. In the past I have always had funds transferred directly between IRAs.
It sounds like a 60 day rollover to me because you could actually spend the money before it gets put into the new Roth IRA. I don't think wiring changes anything as far as that goes.

I would NOT do the FBO in this case because I don't think it will change anything. As soon as the money goes from first institution Roth IRA to first institution taxable account, it is a 60 day rollover, not a trustee to trustee transfer.

Can you open a Roth IRA for $10 at the new credit union and then to a trustee to trustee transfer?
Thanks. That makes sense- going to taxable at either institution is what I suppose makes it a rollover. So I have no other choice, and it probably wouldn't matter if the funds were wired or mailed since they have to first go into taxable at the new institution anyway.
The only way I can fund an IRA at the new institution (Achieva FCU) is through funds in CDs elsewhere.

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