Transfer by check a taxable event?
If I write a check from my Fidelity IRA Money Market Account to my Vanguard IRA Money Market Account will this be a taxable event? Thanks.
If I write a check from my Fidelity IRA Money Market Account to my Vanguard IRA Money Market Account will this be a taxable event? Thanks.
Permalink Submitted by Alan Spross on Fri, 2008-10-17 22:09
Steve,
No, not only is it NOT a taxable event, it is technically a transfer and not a rollover since no funds were payable to yourself.
That said, this could still trigger a 1099R from Fidelity and therefore force you to report a tax free rollover on your Form 1040. If you report a rollover, the IRS will assume that you have exhausted your one permitted rollover for both these accounts. Therefore, it would be best to have this directly transferred out by Fidelity rather than writing that check, even though it may not be as easy.
Permalink Submitted by Stephen Irving on Sat, 2008-10-18 17:57
Alan – Thanks for your prompt reply.
Permalink Submitted by charles lore on Sun, 2008-10-19 03:23
I was inclined to think it was not a trustee to trustee transfer. The check was not issued by Fidelity reading ” payable to Vanguard FBO John Smith IRA” To me the owner writing a check is tantamount to him going to Fidelity, grabing some cash from his ira , walking to Vanguard and depositing it in Vanguard IRA.
I;m wondering Alan why you leaned toward thinking it was a direct rollover.. or Tustee to trustee transfer?
This is actually a great question!
Permalink Submitted by Denise Appleby on Sun, 2008-10-19 15:33
I guess if you look t it from a [i]delivery perspective[/i]… considering that the IRS has used the term trustee-to-trustee transfer to reference the method of delivery in some instances. But- the term is usually used when the delivery occurs directly between the two financial institutions .
From an operational and tax reporting perspective, it is treated as a distribution, just as if the IRA owner completed an IRA distribution request form. These checks are often given to certain clients so they can request withdrawals without having to contact the financial institution. IRA owners can either complete a distribution request form, or write a check. The financial institution will issue a 1099-R for the amount and the receiving financial institution will issue a Form 5498 for the rollover contribution. As a result, the transaction will be counted as a distribution/rollover for the one-year period ( i.e. the once per year rule).
The checks can be used for any distribution purposes, including satisfying RMD amounts.
The literature that accompanies the checks or the application for the checks should include an explanation of how the checks would be treated.
As Alan said, it is best to have the transfer done between the financial institutions. Go to vanguard, and have them initiate the transfer… transfers between IRAs are usually initiated by the receiving financial institutions.