My brother-in-law just phoned with a question concerning the transfer of a Traditional IRA at Vanguard to Schwab. His intention was to transfer it to a Traditional IRA.
Instead of making a “trustee-to-trustee” transfer he inadvertently made a distribution. The funds were in two different types of account. The money market account was transferred immediately. The mutual fund took a day to settle so Schwab received a check a day or two after the check from the money market, even though the order to distribute the account was made on the same day. BIL wants to transfer the entire 2-part distribution into a Traditional IRA at Schwab within 60 days if the IRS will allow it.
BIL says that the IRS only allows one Traditional IRA transfer per year.
Is this true? Does the IRS only allow one Traditional IRA transfer per year?
If it is true, would the two separate checks be considered a single distribution, since they came from the same IRA account and the order was placed on the same day?
BIL is concerned that the two separate checks would be considered two separate distributions and that only one of them would be allowed to transfer to the Schwab IRA. Would this problem arise?
BIL says that the IRS only allows one Traditional IRA transfer per year.
1. Is this true? Does the IRS only allow one Traditional IRA transfer per year?
True, Per 12 months and not a per calendar year.
How were the checks titled?
2. If it is true, would the two separate checks be considered a single distribution, since they came from the same IRA account and the order was placed on the same day?
He should call Schwab’s IRA department. Hopefully, they will answer how it is handled.
If the checks were issued FBO “his name” it is considered a trustee-to-trustee rollover because he didn’t have direct access to the funds.
https://www.sapling.com/10044848/can-cash-rollover-check-eve… Trustee-to-Trustee Rollover The Internal Revenue Service recognizes two different types of rollovers. Generally, investors only use the term “rollover” to refer to the movement of retirement money in instances in which the custodian physically provides you with the funds and you receive cash or a check made payable to you.
Account custodians can also opt to send the money directly to the new account custodian by way of a trustee-to-trustee transfer. When this occurs, the original custodian makes the check payable to the next custodian but writes “for the benefit of” or “FBO” followed by your name on the disbursement check. The new custodian creates an account for your benefit; but, as the payee, the new custodian, rather than you, must negotiate the FBO check.
1. Is this true? Does the IRS only allow one Traditional IRA transfer per year?
Actually, it’s one non-trustee-to-trustee rollover per year, per SSN - meaning you can’t do one in a Traditional account and do another one in a Roth account within 12 months of each other. And it’s not based on calendar year - it’s a full year. The reason this rule was put into place was because there were some people who were doing serial rollovers, so that they could use the money for 60 days, put it back in and then take it out and use it for another 60 days.
2. If it is true, would the two separate checks be considered a single distribution, since they came from the same IRA account and the order was placed on the same day?
Did he make one request, or did he make separate requests for the different accounts? If he made separate requests, that could be considered 2 different distributions. This is one reason that I prefer to have the receiving institution pull the money, rather than trying to push it from the sending institution.
I will point out that if he’s already had one of the checks deposited into his Schwab IRA, but not the other, that could also be an issue.
3. BIL is concerned that the two separate checks would be considered two separate distributions and that only one of them would be allowed to transfer to the Schwab IRA. Would this problem arise?
It could. As vkg suggested, he should call Schwab’s IRA department and see what they can do to get this fixed.