Custodians required to allow Trustee – Trustee transfers?
A tax professional said that he heard there was recent legislation (rev proc, etc.) requiring custodians like Fidelity to allow Trustee to Trustee transfers on inherited IRAs.
In the past, Fidelity has not allowed beneficiaries of inherited IRAs to transfer accounts Trustee to Trustee. Essentially, if the Beneficiary of an inherited IRA wanted to move their account to a different custodian, Fidelity would only allow distribution of the moneys directly to the Beneficiary making it all taxable immediately and in certain cases incur penalties as well.
Has there been any legislation, rulings etc. that has forced custodians to allow this type of transfer, despite how their custodial agreements?
Permalink Submitted by Alan Spross on Sat, 2009-07-04 03:23
Really? I had not heard that about Fidelity. It seems particularly unfriendly to consumers. It is a fact that many custodians do not like inherited IRAs much, since they can only be drawn down. But refusal of a transfer effectively keeps the beneficiary hostage.
The legislation you referred to was WRERA, which makes the transfer of an inherited non spousal employer plan mandatory starting in 2010, but this does not apply to IRA accounts, where the trustee transfer remains optional for owners and beneficiaries. Basically, only competitive pressure forces IRA custodians to offer the trustee transfers. Nothing further pending that as far as I know.
However, remember that a check made out to the receiving inherited IRA custodian still qualifies as a transfer even if sent to the beneficiary. The key is that it not be made out directly to the beneficiary so the beneficiary cannot cash the check. There is a good chance that Fidelity would comply with that request.
Permalink Submitted by Bob Modesti on Sat, 2009-07-04 05:33
Your post is exactly how I responded to the tax advisor’s question. I think his colleague was referring to WRERA too.
The Pension Protection Act of 2006 made it “possible” for qualified plans like 401(k)s to transfer monies trustee to trustee for non-spouse beneficiaries. WRERA 2008 makes it mandatory that non-spouse beneficiaries have the option of a using trustee to trustee rollover to an inherited IRA beginning in 2010.
The advisor’s question was whether custodians (not qualified plans) now have a mandatory requirement to allow trustee to trustee transfers on inherited non-spousal IRAs.
WRERA has no effect on custodial agreements that determine how the institution will treat IRAs, allow or not allow multi generational IRAs, whether customized designated beneficiary forms are accepted, can or will administer separate accounts over multiple generations, etc.
So far it sounds as if the two issues are being mixed in the question posed.
Permalink Submitted by Anonymous (not verified) on Sat, 2009-07-04 18:40
I’ve noticed that mostly Banks and Credit Unions do not allow transfers of Inherited IRAs. I would be surprised, if a large outfit like Fidelity would give you problems. I would always check the custodial agreement and if neccessary take it up with a supervisor or manager – believe me, things can change drastically when management gets involved.
In general, the point about checking how the check is made out is a good idea, BUT I have seen so many reps/processors that will simply comply and then they will issue a 1099R 6 months later. So my advice is check three times and look at the confirm and online transation very carefully. If the conversation was on a recorded line, they will take it back in case you were given wrong information.
pmk