Transfer vs Rollover

Submitted by Larry Lein on Tue, 2016-03-08 23:51

If current IRA holder (ABC Bank) cuts check payable to next holder “XYZ Bank FBO John Doe IRA” then hands check to John who hand delivers check to XYZ Bank — Will this transaction count as “Transfer” or “Rollover” to the IRS?
ABC Bank says they will code their paperwork as a Direct Transfer. XYZ Bank has been unable to give me any answer.



Submitted by Alan - IRA critic on Wed, 2016-03-09 00:23

It is a direct non reportable transfer, as the IRA owner should not be able to cash the check. There should be no 1099R issued by ABC and no 5498 issued by XYZ.

Revenue Ruling 78-406, 1978-2 C.B. 157, provides that a direct transfer of funds from one IRA trustee to another doesn’t result in a payment or distribution of the funds for purposes of Section 408(d)(1), regardless of whether a bank trustee initiates the transfer or the participant directs it.  Rev. Rul. 78-406 also states that a transfer from one IRA bank trustee to another, even if directed by a participant, isn’t a rollover contribution to the recipient IRA because the funds aren’t within the participant’s direct control and use.

                                

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