Conduit IRA
In meeting with a client yesterday he hit me with he has a CONDUIT IRA that cannot be moved from his bank/transferred to another company. I’d not heard the term before.
Isn’t it just an IRA that was rolled over from a prior employer into an “empty bucket”?
Can he not make additional qualified contributions to add to it
Is there some reason he could not transfer it to another company?
Thanks for the help
Permalink Submitted by Bruce Steiner on Tue, 2013-08-27 22:20
The word “conduit” in the context of an IRA generally refers to a trust that’s the beneficiary of the IRA where the trust has to pay out to the beneficiary or beneficiaries all of the distributions it receives from the IRA. A conduit trust is sufficiently inflexible that it rarely makes sense.From the context, he’s probably referring to something else. You’ll have to find out more details to determine what he’s referring to.
Permalink Submitted by Bruce Steiner on Tue, 2013-08-27 22:21
The word “conduit” in the context of an IRA generally refers to a trust that’s the beneficiary of the IRA where the trust has to pay out to the beneficiary or beneficiaries all of the distributions it receives from the IRA. A conduit trust is sufficiently inflexible that it rarely makes sense.From the context, he’s probably referring to something else. You’ll have to find out more details to determine what he’s referring to.
Permalink Submitted by Alan - IRA critic on Tue, 2013-08-27 23:10
A “conduit IRA” as opposed to an IRA paid to a conduit trust as beneficiary is an obsolete term for a rollover IRA. The old term referred to the IRA as a temporary parking spot for the rollover assets before they are rolled back into a new employer plan from the “conduit IRA”. Today the term has morphed into “rollover IRA” which implies an IRA account created from an employer plan rollover and not holding any IRA regular contributions. Client needs to look into the alleged “non transferability” restriction which is likely explained by unknowledgeable bank reps or an effort to retain assets at the cost of credibility. No reason the account could not be transferred out or a new contribution made to it, but it would then lose the benefit of being a rollover IRA and there are still some employers who will limit incoming rollovers from IRAs to rollover IRAs. Another possible reason to not contribute to it is the loss of unlimited creditor protection amounts in states where the federal bankruptcy Act applies to IRA creditor protection. In those states the loss of rollover status means that the client’s IRAs are protected for about 1.2mm in total instead of unlimited amounts.
Permalink Submitted by Maggie Benton on Thu, 2013-08-29 21:09
You’ve hit it …. it is an IRA… and it was a roll over from a prior employer and is sitting in a bank. Sometimes our interviews (FNA’s) take us into strange territory. Glad to have your insight! Thanks…
Permalink Submitted by TROY SOCKLER on Tue, 2018-05-15 16:08
Can a taxpayer, who has started RMDs, transfer the conduit IRA back to a QRP that employer has and not have RMDs on that amount until seperation of service?
Permalink Submitted by Alan - IRA critic on Tue, 2018-05-15 17:09
Yes, if the 401k plan will accept IRA rollovers. The IRA does not necessarily have to be a conduit (rollover) IRA for the employer plan to accept a rollover, but some plans still limit rollovers to rollover IRAs.. Any IRA basis from non deductible contributions cannot be rolled into the QRP, and the IRA RMD cannot be avoided for the year the rollover is done into the QRP.