Combining Traditional IRA into a Rollover IRA
When transferring a Traditional IRA account held at brokerage firm #1 (BF #1) into a Traditional IRA held at Schwab, BF #1 accidentally transferred the client’s assets into the client’s Rollover IRA held at Schwab (instead of the Traditional IRA that was set up). So, now the assets have been commingled and combined into the Rollover IRA held at Schwab.
From some research, I understand that:
- The client probably won’t be able to roll the Rollover IRA into a company retirement plan any more b/c Traditional funds were commingled with Rollover funds.
- The bankruptcy protection might not be as good as pure Rollover IRAs have unlimited bankruptcy protection vs. Traditional IRAs that have $1.5M+ protection limit
Are there any other consequences of this situation? There is still time to fix this as this just happened, and was an error on the brokerage firm’s part.
Permalink Submitted by Alan - IRA critic on Thu, 2024-10-10 17:52
Many plans will still accept an IRA rollover whether from a rollover IRA or not. Schwab might still show the IRA as a “rollover IRA” but technically it no longer is.
Most states provide full creditor protection with no dollar limit for IRAs regardless of bankruptcy. In other states with limited protection the bankruptcy Act limits come into play, but it is not clear whether the original rollover IRA amount can still be protected without limit regardless of commingling or not. Therefore, the state of residence matters, as do other states that the client might move to. Just in case, the client should make a copy of the latest statement for the rollover IRA prior to receiving the non rollover transfer and retain that just in case.