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Trustee-to-Trustee Transfer of Money: Patience is a Virtue

Each week I, along with our IRA Technical Consultants, see a myriad of questions from advisors and consumers alike. Sometimes these questions are super-technical-dig-through-the-Code complex, but just as often people are simply looking for the best way to accomplish their goal given the many options at their disposal. Such was the case with one question I received this week regarding the best way to deal with checks when making a 60-day rollover. The question basically went like this…

“Since transferring money from custodian to custodian can take a long time, many of my friends are doing rollovers instead. If I get a check from my previous IRA company, can I deposit it into my personal account and then make a new check payable to the next custodian? Since the initial check is made out to me, I would be concerned about sending in an endorsed check to the next custodian.”

The short answer to this question is a simple yes. If you are making an indirect (60-day style) rollover, usually the best way to do so is us to deposit the money into your own checking account and then write a new check payable to the your IRA institution fbo your IRA.

But this short answer neglects the larger concern I see inherent in this question - that simply because it might take a little longer, it’s a good idea to abandon transfers in favor of potentially quicker, but more problem ridden 60-day rollovers. In my book, that’s a lousy assumption.

I would suggest to you that exercising patience will most likely save you both money and unnecessary headaches over the long run. Transferring money from one institution to another eliminates many concerns. For example, when you transfer money, you have no 60-day worries. Too often people forget, or something comes up, and they blow this deadline. It also eliminates worries over the once-per-year rollover rule that applies to IRA-to-IRA or Roth IRA-to-Roth IRA 60-day rollovers - which, mind you, IRS has no flexibility to correct if mistakes are made. Finally, it eliminates the 20% mandatory withholding on the distribution if it came from a plan that could also pose significant tax complications for you.

The bottom line is that when reasonably possible, even though it may take a little longer, doing it the sure way, what we really see as the right way, is going to be worth it. If you make enough of these 60-day rollovers, there's bound to be a mistake of some sort at some time, no matter how careful you are. Simply put, when moving IRA money from one company to another, I would remind yourself that patience is a virtue.

-By Jeffrey Levine and Jared Trexler


Do you have any comments or info on the Pub 590 mention of 20% with holding on NON T-to-T Rollovers? When you ask the IRS tele-drones (all the folks who KNEW ANYTHING I used to get 3 years ago are GONE) they just re-read Pub 590 to you, after you wait 5 minutes for them to get the book and turn the pages! P.590 says "use other funds" to replace the withheld,(to avoid creating an unintended DISTRI BUTION, for even MORE TAXES!) So, is this 20% GONE, or can it be recovered thru my 1040 filing (if numbers work out)? What a Rip-off!

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Thursday's Slott Report Mailbag

Consumers: Send in Your Questions to [email protected]

You recently said that a 401(k) distribution would add to your MAGI (modified adjusted gross income) for the purpose of determining if you are subject to the 3.8% healthcare surtax. What about Roth IRA distributions? Would they also count towards your total MAGI income for surtax purposes?


IRA distributions are exempt from the 3.8% surtax, but taxable distributions from IRAs can push income over the threshold amount, causing other investment income to be subject to the surtax. Because Roth IRA distributions are generally tax-free, they don’t count towards your total MAGI.