Is a rollover/transfer to Inherited IRA via check made out to Broker with ‘fbo’ a tax-free event?

Submitted by Ben Abelson on Mon, 2019-10-14 18:08

My wife is a beneficiary on her mother’s 403b. We set up an Inherited IRA at our Broker to receive a transfer of these funds. Instead of electronically transferring the funds, the 403b provider sent my wife a check. The check is made out to the “Broker Name ” with the Inherited IRA account number and “fbo Wife’s Name”.

My supposition is that this is essentially the same mechanism as a trustee-to-trustee transfer since the check is made out to the Broker NOT my wife, but I want to confirm this before depositing or mailing the check to the broker. My only hesitation/concern was that the 403b provider (which is an unsophisticated teacher’s union, not a major investment firm) had described the distribution as as a taxable event on their form letter.



Submitted by David Mertz on Mon, 2019-10-14 20:05

  • It’s quite common for a plan to send a check made out this way for the participant to forward to the IRA custodian.  The individual is only transporting the check, not receiving a distribution, since the individual should not be able to cash the check because the check is not made out to the individual.
  • The 403(b) plan should show the distribution on Form 1099-R with codes 4 and G in box 7, indicating a direct rollover, and should show in box 2a that the taxable amount is $0 (unless the plan believes that the rollover is being made to an inherited Roth IRA, making it a taxable rollover).

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