Guidance on Transfers and Direct Rollovers
rollovers from 401(k) plans into traditional IRAs average more
tax rules applying to a transfer contribution are very different
from those applying to rollover contribution (direct or indirect).
must exist to minimize IRA custodian errors. Errors arise because
IRA personnel do not understand that the tax rules differ from
transfers and direct rollovers. They are not the same and IRA
staff sometimes fail to know this.
example, a check for $65,000 is sent to First State Bank (FSB)
fbo Jane Doe's traditional IRA. The personnel of First State Bank
process the contribution as a transfer as they forget to ask the
question, "what type of plan issued the check?".
The problem is, the check was issued because Jane Doe had instructed
her former employer's 401(k) plan to directly roll over her 401(k)
funds to a traditional IRA. Since the check was processed as a
transfer, FSB did not report this contribution on the Form 5498
as a rollover as it is required to do. No doubt the IRS will contact
your customer who will contact you and the IRS will be interested
in learning why FSB did not report this rollover on the Form 5498.
Determine that you and your IRA staff know what is needed to be
known regarding transfers, direct rollovers and rollovers. We
at CWF can assist. Call us at 800.346.3961 or visit our website
for information on webinars,
IRA Tests, IRA
Procedure Manual and IRA
Rollover Certification Forms.
your IRA rollover form has a print or revision date prior to 2015,
it is obsolete and should be discarded.