Contributory vs. Rollover

Submitted by IRAQuestion5 on Mon, 2023-10-02 21:14

Hello-

Client in AZ set up a new Contributory IRA ($0 balance). The account will only be used for rolling over funds from a 401k. Should we set up a new IRA specifically marking it as rollover? If we for some reason want to move it to a “Rollover” IRA in the future can we just roll the “Contributory” IRA that never had contributions to the “Rollover” IRA and have it treated as a Rollover IRA for all purposes?

Thank you!



Submitted by Alan - IRA critic on Mon, 2023-10-02 21:31

  • The client could request that the IRA be retitled as a rollover IRA if it now shows as a contributary IRA as there is no reason that the custodian should refuse this request. Once they change it the the direct rollover can be ordered. 
  • AZ and most other states provide full creditor protection for IRA accounts, so the only reason to care about this is that an employer might refuse to accept the IRA reverse rollover if the check shows “contributary IRA”. But if the client is retired for good, this does not matter either. But to cover all possible bases, if the IRA custodian will not rename the IRA, a new rollover IRA could be opened.
  • To be clear, an IRA flagged as a contributary IRA but only contains rollovers is a rollover IRA. But proving so should this become an issue would be a hassle.


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