Traditional IRA roll over with FBO

[magicstar41000-y]

In 2023, my friend moved traditional IRA money (CD matured) from bank ABC to XYZ.  Bank ABC wrote her a check with "her name and FBO XYZ bank." Bank ABC sent her  a 1099-R with code "7" in box 7.  Should Bank ABC not have sent her the 1099-R?  Now Bank ABC should correct the 1099-R and put code "G" in box 7? My friend did not receive any form from bank XYZ.  Should she? 

Thank you very much!

[dmertz · Accepted solution]

Movement of an IRA to another IRA by the method that you described is a trustee-to-trustee transfer and is not reportable.  No Form 1099-R should have been issued at all.  I assume that the Forms 1099-R shows no tax withholding that would complicate things.  ABC should be asked to correct the form to show  zeros where the original shows dollar amounts in boxes 1 and 2a.

This sort of bank error is common because bank personnel are usually poorly trained with regard to the difference between a distribution from an IRA and a transfer of an IRA.  They frequently mistakenly mark the Distribution box on the withdrawal form instead of the Transfer box and the back office obligingly reports the transfer as a distribution when it is not actually a distribution.

If XYZ has not and will not report receipt of a rollover in box 2 of a Form 5498 (the deadline to provide such a form has not yet passed), they have properly processed the transaction as a trustee-to-trustee transfer.  A trustee-to-trustee transfer is neither a distribution nor a rollover.

Code G is never to be used for movement of funds from one IRA to another.  Code G is only used for the movement of funds to or from an employer plan like a 401(k).

[magicstar41000-y]

If ABC corrects the form to show zeros in boxes 1 and 2a, ABC will send the correct form to the IRS so my friend does not need to report the transfer anymore?

XYZ did not issue any form.  They said they did things correctly and did not need to do anything further.

Is that correct?

Thank you.

[dmertz]

Correct.