I am helping a client do direct custodian-to-custodian transfers to an Inherited IRA, of her portion of her deceased father’s IRA and 403b accounts. The destination custodian in Charles Schwab. Schwab is telling me that IRS regulations do not allow co-mingling of these two types of funds. They are telling me me have to open separate I-IRA’s for each source/funds and cannot merge them at any point thereafter. Having multiple I-IRA’s will of course complicate the future distributions process and I would like to help the client avoid this if possible.

Further, Schwab’s position seems counterintuitive since we could get both the IRA and the 403b funds into one I-IRA if we first have the client/beneficiary rollover her IRA and 403b funds into I-IRA’s at the current account custodians, as a mere temporary measure prior to the subsequently transferring the two separate I-IRA accounts into one at Schwab.

When asked for explanation, Schwab merely refers me to IRS Publication 590 to understand why it can’t allow the co-mingling of the IRA and 403b funds. Can anyone provide guidance on Schwab’s rationale and direct me to relevant regulations? Thanks.