Direct Transfer coded as a 60 day rollover.

Submitted by Howard Murray on Thu, 2018-12-06 23:38

Hello,

IRS publication #590-A states that an IRA to IRA transfer in which the check made payable to another IRA Trustee (FBO: me) and then mailed to me to deposit is not a rollover. I recently made such a transfer and the sending firm insisted that it was a 60 day rollover, coded it as such, and it was hard to get it changed. Now, I’m trying to move a qualified plan from a former employer to another IRA Trustee…..and they also want to call this a rollover and will not send directly to my other trustee (that one is on hold). These are both large firms whose names you would recognize. The following is from the IRS publication and seems clear to me:

IRS publication 590-A: https://www.irs.gov/publications/p590a#en_US_2017_publink1000230589

“A transfer of funds in your traditional IRA from one trustee directly to another, either at your request or at the trustee’s request, isn’t a rollover. This includes the situation where the current trustee issues a check to the new trustee but gives it to you to deposit. Because there is no distribution to you, the transfer is tax free. Because it isn’t a rollover, it isn’t affected by the 1-year waiting period required between rollovers.”

Am I somehow missing something? Seems odd that I’ve run into this same situation twice in the last two weeks. The IRS regs. above were exactly followed. Can anyone offer advice?

Thanks!



Submitted by David Mertz on Thu, 2018-12-06 23:50

Nonreportable trustee-to-trustee transfers are possible only between same-type IRAs and are neither a distribution nor a rollover.  However, movement of funds beween a employer’s qualifed retirement plan (other than an IRA-based plan) and another qualified retirement account is always a distribution and rollover.  Done directly between the qualified retirement plan and the other qualified account is a “direct rollover,” not an indirect, 60-day rollover, and not an IRA trustee-to-trustee transfer.  Direct rollovers are not subject to mandatory tax withholding and are not subject to the one-rollover per year rule that applies to IRA-to-IRA rollovers.  (The text that you quoted is for IRA-to-IRA rollovers.)

Submitted by Alan - IRA critic on Fri, 2018-12-07 01:03

As DMx indicated, the qualified plan direct rollover processing is correct. But the IRA to IRA transfer is being mishandled by the distributing IRA firm. If that firm issues a 1099R reporting a distribution (in errror), it will lock you out of another IRA to IRA rollover for the next 12 months, and far worse if you did one in the prior 12 months then you would be taxed on this misreported distribution and any rollover would generate an excess IRA contribution.  There are obviously some untrained people at the old IRA custodian so you need to elevate your case to the supervisory level to stop the 1099R before it is issued. Note that even if the new IRA custodian knows better than to issue a 5498 showing a rollover contribution, the IRS tends to go by the 1099R form and will expect to see you report a distribution and rollover on your 1040. 

Submitted by Howard Murray on Fri, 2018-12-07 03:33

Thanks DMx and Alan-iracritic. I did kick the IRA to IRA question up a level at the brokerage firm after they had me get a letter from the receiving trustee stating that they treated it as a direct transfer before they (sending trustee) would change their coding to non-taxable. They have assured me that it has been corrected to “non-taxable”, but have yet to answer why this occured. I’m afraid that it is incorrect policy rather than a simple erronious error. Now if the second transfer (not yet completed) from my qualified plan with my former employer (my defined benefit plan was rolled by the company into an annuity from which I can request a lump sum payout) sends a check to me made out to the new trustee, you’re saying that this is a “Direct Rollover” (not a 60 day rollover) and I do not have to report it and it does not count as a rollover in the 12 month rolling period? So I guess a 60 day rollover is never an option under that scenerio…..only a taxable cash out or a direct rollover? (They will not do a direct trustee to trustee transfer). Thanks so much….

Submitted by Alan - IRA critic on Fri, 2018-12-07 03:56

  • This former brokerage firm does not seem to understand the basics of IRA transfers. Must be a very small firm.  Hopefully, they meant “non reportable” rather than non taxable and there will be no 1099R. Further, the requested letter from the receiving custodian was a total waste of the receiving custodian’s time and yours. At least your new custodian is up to speed, and perhaps you do not have any assets left at the prior brokerage.
  • No rollovers from a qualified plan, either direct rollovers or 60 day rollovers count toward the one rollover rule, but they all have to be reported on a 1099R and by you on your tax return. In this case, the funds moved by direct rollover and you will get a 1099R coded G. If the distribution has been paid to you personally you would receive a 1099R coded 1, or coded 7 if you were over 59.5.

Submitted by Ben Meyer on Sun, 2018-12-09 18:50

  • As Alan and DMx have described, a direct transfer from one IRA to another IRA of the same type is not a rollover, and is not reported on form 1099-R. In case there is still any question, you can refer the distributing brokerage to the IRS instructions for form 1099-R, which contains the following:

“Transfers.  Generally, do not report a transfer between trustees or issuers that involves no payment or distribution of funds to the participant, including a trustee-to-trustee transfer from one IRA to another IRA,…” 

  • Another significant indication that this is a transfer and not a rollover is the fact that the check was payable to the new IRA custodian.  This means that the participant never received the funds, so no 1099-R should be issued.

Submitted by Howard Murray on Mon, 2018-12-10 12:55

Thanks so much for all of the excellent information. For my employeer plan which I will place in a traditional IRA, the company will send my lump sum payment (from a former defined benefit plan) to me payable to the new trustee (FBO me). I understand that this is a “direct rollover” as opposed to a “60 day rollover” (but not a non-reportable “direct transfer” since it is being mailed to me). So I’m trying to understand the difference in a “60 day rollover” and a “direct rollover.”***Am I correct that BOTH of these must be reported on the same line 15b of my tax return, so I must report the direct rollover, but the difference is that the direct rollover DOES NOT COUNT toward the one time in a rolling 12 month period?

Submitted by David Mertz on Mon, 2018-12-10 13:25

  • You are correct that the rollover to a traditional IRA of distribution from a qualified retirement plan like a 401(k) or pension plan buyout, either directly or indirectly, is non-taxable and is disregarded with respect to the one rollover in a 12-month period that applies only to IRA-to-IRA rollovers.
  • Both direct and indirect rollovers are reportable in the same way, now on lines 4a and 4b of the redesigned Form 1040 for 2018.  The gross amount of the distribution from the qualified retirement plan will be includible on line 4a but none of the rollover will includible on line 4b since the rollover of the entire gross amount makes it nontaxable.

Submitted by Howard Murray on Tue, 2018-12-11 14:17

This has been a huge help. Thanks so much!

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