IRA/HSA one-rollover-per-year rule

[tACKJAYE]

I understand that IRA/retirement plans are restricted by a one-rollover-per-year rule if you take possession of the funds. If I rollover my previous employer's 401(k) to Fidelity and the check is written in Fidelity's name FBO myself and I deposit that check into the Fidelity rollover IRA account, would that trigger this one-a-year rule?https://www.irs.gov/retirement-plans/pl ... tributions. 

Also, does this one-rollover-per-year rule extends to HSA 60-day rollovers? i.e.if I do a 60-day Rollover for my HSA account this year, would it impact my ability to rollover any 401(k) to Rollover IRA or vice-versa? https://www.irs.gov/publications/p969#e ... 1000204068

[runninginvestor]

I don't know the question on HSAs .

But for rollovers, direct rollovers don't count towards the one per 365 day year rule.

This includes:
1. The institution sends it directly to the other institution
2. The institution sends you a check with 'FBO Your Name' alongside the institution name. And then you forward/upload the check to the new institution.

Essentially as long as you don't receive the check in your name only, in my experience it's always counted as a direct rollover and doesn't count towards the one per year rule.

[Northern Flicker]

There are some subtleties here. My understanding is that if you do attempt to do a trustee transfer from a 401K to an IRA and take possession of a check made out to the new trustee, which you do not endorse or deposit, but forward to the trustee, it will count as a direct, trustee-to-trustee transfer.

But my understanding also is that if you do that from an IRA to an IRA or HSA to HSA, it will be considered an indirect rollover where you took possession of the assets as an intermediary even if you only take possession of a check made out to the new IRA organization FBO your IRA, and send the check to the new organization for them to endorse and deposit.

An IRA rep at one of the large brokers (household name to BHs) told me that the receiving organization must originate the process and a check must be sent straight to them if the source is an IRA and you want it to be a trustee transfer not subject to the 12 month rule. I believe HSA rollovers work the same way, and I believe the rule is 1 rollover per any 12 month period where you take possession of funds, across all account types (401K, tIRA, Roth, HSA, probably 529 as well)

Some banks will code all distributions as a rollover (subject to the 12 month rule) no matter where they send a check. One bank told me they have no provision to enter this categorization in their system, and they will code all types of rollovers as distributions on 1099-R's.

[tACKJAYE]

Some banks will code all distributions as a rollover (subject to the 12 month rule) no matter where they send a check. One bank told me they have no provision to enter this categorization in their system, and they will code all types of rollovers as distributions on 1099-R's.

I did one 401(k) to IRA rollover/trustee-to-trustee/Fidelity-to-Fidelity transfer in 2018 and Fidelity issued me a 1099-R with a distribution code "G" and also form 5498.

[Northern Flicker]

The source was a 401K, so that is consistent with my posting.

[Alan S.]

Some banks will code all distributions as a rollover (subject to the 12 month rule) no matter where they send a check. One bank told me they have no provision to enter this categorization in their system, and they will code all types of rollovers as distributions on 1099-R's.

I did one 401(k) to IRA rollover/trustee-to-trustee/Fidelity-to-Fidelity transfer in 2018 and Fidelity issued me a 1099-R with a distribution code "G" and also form 5498.

Note that the one rollover limitation does not apply to rollovers between IRA accounts and non IRA accounts. Therefore, a distribution check made to the employee from a 401k is not subject to the one rollover limit. That said, such distribution will be subject to mandatory 20% withholding in most cases, so to complete the IRA rollover you would have to replace the amount withheld from your other funds.

The idea that a bank cannot properly code a check made out to an IRA custodian FBO taxpayer as a direct non reportable transfer is nonsense. Even if that check is handed to the taxpayer, if the taxpayer is not the payee it's a non reportable transfer. There should be no 1099R or 5498 issued. This also applies to HSA accounts.

Many of these errors escape detection because the same banks that would miscode IRA transfers are also clueless about the one rollover limitation. Therefore, the consequence of the miscoding is erased by accepting a rollover that otherwise would not be eligible. The IRS depends on IRA custodians to enforce the rollover rules.

[tACKJAYE]

The idea that a bank cannot properly code a check made out to an IRA custodian FBO taxpayer as a direct non reportable transfer is nonsense. Even if that check is handed to the taxpayer, if the taxpayer is not the payee it's a non reportable transfer. There should be no 1099R or 5498 issued. This also applies to HSA accounts.

So, just wondering, in your opinion, Fidelity shouldn't have issued a 1099-R with a code "G" and 5498?

[Northern Flicker]

The idea that a bank cannot properly code a check made out to an IRA custodian FBO taxpayer as a direct non reportable transfer is nonsense. Even if that check is handed to the taxpayer, if the taxpayer is not the payee it's a non reportable transfer. There should be no 1099R or 5498 issued. This also applies to HSA accounts.

Many of these errors escape detection because the same banks that would miscode IRA transfers are also clueless about the one rollover limitation. Therefore, the consequence of the miscoding is erased by accepting a rollover that otherwise would not be eligible. The IRS depends on IRA custodians to enforce the rollover rules.

I thought it was nonsense as well, but that's what happened once when I did an HSA->HSA trustee transfer from a bank. It was a big hassle to clean it up with a recalcitrant bank as the source of the transfer.

[Alan S.]

The idea that a bank cannot properly code a check made out to an IRA custodian FBO taxpayer as a direct non reportable transfer is nonsense. Even if that check is handed to the taxpayer, if the taxpayer is not the payee it's a non reportable transfer. There should be no 1099R or 5498 issued. This also applies to HSA accounts.

So, just wondering, in your opinion, Fidelity shouldn't have issued a 1099-R with a code "G" and 5498?

They correctly issued a 1099R coded G and a 5498 issued for the IRA rollover contribution. The non reportable transfers referred to above are between IRA accounts only (IRA to like kind IRA). A direct rollover between an IRA and a non IRA plan (or vice versa) must be reported with Code G whether done through a check or electronically, and these are not subject to the one rollover limit.

So we have a confusing set of rules that depends on both how the payee on a check is shown, as well as the type of accounts that the funds are moving to or from.

[CletusCaddy]

Does any one know the rationale behind the one-rollover-per-year rule? What exactly would be the social harm of allowing multiple rollovers per year?

[Makefile]

Does any one know the rationale behind the one-rollover-per-year rule? What exactly would be the social harm of allowing multiple rollovers per year?

It's a prohibited transaction to borrow money from your IRA, and if you could do as many rollovers as you want, you could do continuous 60-day short term loans via the rollover procedure--essentially always having an in-flight rollover and able to do what you want with the money.

A few years back, it was clarified that any indirect rollover locks you out of doing an indirect rollovers between any IRAs you own for the 12 month period. Previously it was thought that it only applied to the IRAs involved if you owned multiple IRAs.

[dcabler]

I understand that IRA/retirement plans are restricted by a one-rollover-per-year rule if you take possession of the funds. If I rollover my previous employer's 401(k) to Fidelity and the check is written in Fidelity's name FBO myself and I deposit that check into the Fidelity rollover IRA account, would that trigger this one-a-year rule?https://www.irs.gov/retirement-plans/pl ... tributions. 

Also, does this one-rollover-per-year rule extends to HSA 60-day rollovers? i.e.if I do a 60-day Rollover for my HSA account this year, would it impact my ability to rollover any 401(k) to Rollover IRA or vice-versa? https://www.irs.gov/publications/p969#e ... 1000204068

At least with the HSA, you always have the option of doing a custodian to custodian transfer instead of a rollover and do so as often as you like. That's what I do with money deposited into HealthEquity via payroll deduction. When the cash balance gets up to around $1K (every three paychecks), I initiate the transfer online. Average time for me has been about 20 days for it to show up at Fidelity because HealthEquity sends them a live check instead of doing this via ACH. It's been as short as 15 days and as long as 38 days (early 2022 when they were having some issues at HealthEquity which was noted in at least one thread here on the forum). Ignoring a couple of outliers, it's usually between 15 and 20 days.

In my case, I can initiate the transfer from either the HealthEquity side or the Fidelity side. Early on, I did an experiment to see which one was faster, and initiating it from the HealthEquity side was a little faster. But honestly, the variability is so high, it likely doesn't matter either way - whichever you like best.

Likely similar with most custodians, just beware of a couple of things
- You might have to keep a small balance at the originating custodian to keep the account open. Important if you're still making payroll deductions at an employer. For me at HealthEquity, it's $25
- I've heard of some custodians charging for transfers, but that's not been my case

YMMV

Cheers.