Rollover to Rollover

Submitted by Julie Brangenberg on Wed, 2014-12-17 20:22

Client did a direct rollover to credit union, but had intended to rollover some of the money to an annuity IRA with our firm. Now credit union going to write a check to annuity company fbo client, and we are asked to code as direct rollover. Does this sound ok?



Submitted by Alan - IRA critic on Wed, 2014-12-17 20:33

Yes, trustee to trustee transfers are unlimited. Credit union should make out check to the annuity company FBO client’s IRA, and this would be a non reportable TtoT transfer. Direct rollovers technically involve a qualified plan on one end of the transaction. What is needed here is an IRA to IRA non reportable TtoT transfer.

Submitted by Julie Brangenberg on Thu, 2014-12-18 15:22

The credit union is only reporting the amount they are going to keep as a direct rollover.  They instructed me to report the amount for the annuity as a direct rollover as well??

Submitted by Alan - IRA critic on Thu, 2014-12-18 16:13

With proper reporting, the 1099R form reporting any distribution should match up with the 5498 (IRAs only) issued by the receiving IRA custodian. If the 1099R is more than the 5498 total, IRS might doubt that the rollovers were fully completed. Did the funds originally moved to the CU come from another IRA or from an employer plan?  I know you indicated it was done by direct rollover, and that would indicate the original funds came from an employer (non IRA) plan.

Submitted by Julie Brangenberg on Thu, 2014-12-18 17:51

Original funds came from Employer Plan to CU.  I was told by CU Financial Rep. that he reported monies kept with them as a direct rollover and he asked me to report monies made payable to annuity company with us as a direct rollover.  We received a check from the credit union, made payable to annuity co. fbo client.

Submitted by Alan - IRA critic on Thu, 2014-12-18 20:17

  • OK – the transfer from the Employer Plan to the CU was a direct rollover which will be reported on a 1099R with Code G. The CU should inssue a 5498 showing receipt of an IRA rollover contribution. The two will match up. The CU IRA to annuity IRA cannot be a direct rollover, it is either a reportable distribution or a non reportable trustee to trustee transfer. Their check as described would be a direct TtoT transfer and should not be reported on a 1099R. And the annuity custodian receiving check FBO client should also not report receipt of the IRA transfer contribution. Everything matches up and all client reports on the tax return is the direct rollover from the employer plan on lines 16a and b.
  • Should the CU decide to issue a 1099R OR if the annuity custodian issues a 5498, some reporting challenges are created for the client. If only one of these are issued, there is no 1099R -5498 match and client will have to attach an explanatory statement with the tax return that may still evoke an IRS request for further documentation. Or the client could report a rollover on lines 15a and 15b of the return as a form of explanation however that exposes client to the new rollover limitations and would have to be very careful not to avoid another one for 12 months. It should all work out in the end, but only after delay and uncertainty. When the CU advises you to report as direct rollover, that is misleading because this portion is a non reportable transfer and direct rollovers between IRAs do not exist. And if they meant “transfer” instead of direct rollover, IRA to IRA transfers are not reported. It would be desirable if you could get their reporting firm to agree that they will NOT issue a 1099R for this transfer. Then you simply do not issue a 5498 and everything is fine.
  • Finally, if they insist on issuing a 1099R, I would NOT issue a 5498 just to match up with the 1099R. Then the client has two documents that suggest a reportable rollover was done. If you do not issue the 5498, the client will be in better position to state to the IRS that the CU should not have issued the 1099R because the funds actually moved by TtoT transfer.

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