Is a distribution triggered by writing a check from one IRA account to another IRA account?

[5spice]

Is a distribution triggered by writing a check from one IRA account to another IRA account?

I have checks for a traditional IRA account at bank-A. I opened another traditional IRA account at bank-B by sending them a check from bank-A, made out to bank-B for my benefit. The way I understand this, this would be a transfer and not a roll-over and bank-A should not file a 1099-R since this is not a distribution. Further, it looks to me like I can do this same type of transaction as many times as I want since it is a transfer and not a rollover which has a one in 12-month limit.

Does this seem correct? I already did this, but I'm concerned that it could be problematic. thx for any help/suggestions!

[dmertz · Accepted solution]

An IRA custodian will always report on Form 1099-R a check written on an IRA that has check-writing privileges, treating this a distribution and rollover, not a trustee-to-trustee transfer.  To make it a trustee-to-trustee transfer you would have to either convince the IRA custodian not to include this on Form 1099-R or convince the IRS that the Form 1099-R is incorrect because you did not have constructive receipt of the funds.  It would be challenging to convince either of these entities, so moving money from one IRA to another in this manner should be avoided unless you intend it to be a distribution and rollover.

[Critter]

Due to the new  indirect rollover rules it would always be best to do a direct trustee to trustee rollover ... writing a check leaves you open to IRS conflicts if a 1099-R is issued .... talk to the IRA administrator for more info on this matter. 

[macuser_22]

I agree with dmertz - I find it HIGHLY unlikely that you will be able to convince the IRA custodian not to issue a 1099-R.    Even if the check was made out to the new IRA account and not to you personally, the issuing financial institution has no way to know that the check was actually deposited in to an IRA account and not some other type of account in the receiving institution.    A financial institution will probably issue a 1099-R unless they are the ones to make the trustee-to-trustee transfer themselves and they know what account it was transferred into.

[5spice]

Thank you. If this ends up being characterized as a rollover, and the "distribution" was put into the new IRA account immediately (less than 60 days), is this difficult to report to the IRS to avoid paying any taxes. Is there a way to declare this for IRS purposes?

[SweetieJean]

When you get the 1099-R, you entered it into the Retirement section of Wages and Income in TT. There will then be follow up questions.   One of them asks about rollovers.  

[Critter]

However ... due to the new rules on non direct rollovers you will not be able to do another non direct rollover for 365 days ... stick to trustee to trustee moves to be on the safe side. 

[5spice]

update: I contacted both banks. bank-A coded it as a "distribution" and bank-B coded it as a "transfer". bank-A did not withhold any taxes. I think it will end up being an indirect rollover tax-wise.

Do you agree? thx!

[macuser_22]

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@5spice wrote:

update: I contacted both banks. bank-A coded it as a "distribution" and bank-B coded it as a "transfer". bank-A did not withhold any taxes. I think it will end up being an indirect rollover tax-wise.

Do you agree? thx!

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Yes, it will be an indirect rollover.   Back A receives no feedback form bank B whatsoever.   Bank A only knows that you took a distribution. They really do not care what you did with the distribution.   It will be up to you to report the 1099-R on your tax return as a rollover.   The 5498 that bank B will issue only confirms that it was rolled over.

[Critter]

Remember you cannot do another indirect transfer for 365 days from the last one ... stick to trustee to trustee transfers even if you have a check book you can access. 

[dmertz]

There is a disconnect in IRA A reporting it as a distribution and IRA B treating it as a transfer.  The nature of the transaction is primarily determined by what IRA A reports, so if IRA B treats it as a transfer, meaning that it will not be reported as a rollover contribution on Form 5498, there's a significant chance that the IRS will question whether or not the money was actually rolled over and you will have to provide account statements from IRA B to show that the money reported as distributed from IRA A was indeed properly deposited in IRA B.  You'll likely also have to provide account statements from IRA a to show that the indirect rollover was completed by the 60-day deadline.

You might want to get IRA B to correct the coding to show it as a rollover (unless you intend to contest IRA A reporting it as a distribution).