My IRA Custodian Won’t Let Me Do What?!

By Beverly DeVeny, IRA Technical Expert
Follow Me on Twitter: @BevIRAEdSlott

Retirement plans are one area of the tax code where you may not be able to do everything the tax code says you can do. IRA custodians and employer plans can sometimes limit your options. One reason they might do this is to make it easier for them to manage and process your transactions.

Recently, I have come across two examples of this. Both occurred in credit unions that have IRAs, but you will find examples in all types of IRA custodians and employer plans.

One custodian told a non-spouse beneficiary that they do not do stretch IRAs. The only option for the beneficiary was to cash out the account by taking a check payable to him. The tax code does not allow a non-spouse beneficiary to do a 60-day rollover so the beneficiary would end up with a taxable distribution. He was going to try to talk the custodian into making the check payable to an inherited IRA at another institution to avoid that undesirable outcome.

Another custodian is telling a spouse that she cannot move her IRAs inherited from her husband to an IRA in her own name. They are telling her that she must take required distributions from her inherited IRAs each year because her husband was over age 70 ½ when he died. She will not be 70 ½ for several years. She can avoid this outcome by moving the inherited IRAs to another IRA custodian that will allow her to do a spousal rollover.

Over the years, I have seen employer plans that will not allow a beneficiary to disclaim, IRAs and plans that will not accept a trust as a beneficiary of the retirement funds, custodians that will not open retirement accounts for minors that want to make deposits from their earnings, and custodians and plans that will not accept a power of attorney document. One custodian would only allow a per stirpes beneficiary designation for children, not for nieces and nephews. The most common thing an IRA custodian or employer plan will limit is your investment choices. An IRA can invest in anything other than collectibles and life insurance, but the large IRA custodians generally offer you only stocks, bonds, mutual funds and cash. Employer plans are even more limiting, generally offering you only 10-20 investment options.

If there is an estate planning option, such as a disclaimer or a trust, that is important to you, make sure that option is available for your IRA or employer plan. If an alternative investment is important to you, find a custodian that allows that type of investment in your retirement plan.

Stretch IRAs and spousal rollovers are basic IRA planning options. Make sure your custodian allows them. It is easy to move your funds during your lifetime; it may be difficult or impossible for your beneficiaries to accomplish a move after your death.