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February 15, 2009

Trustee-to-trustee transfer

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Definition

From a technical perspective, trustee-to-trustee-transfers means that the assets are paid to the receiving retirement custodian, trustee or other approved recipient.
Within the retirement industry, the term trustee-to-trustee-transfer is usually used to refer to a transfer, where the assets are moved nonreportably between accounts of the same type. See transfer.
For purpose of the transfer rule, transfers occur between accounts or retirement plans of the same type. For instance,
  • from a traditional IRA to another traditional IRA ( or SEP IRA) that has the same owner for both.
  • from a Roth IRA to another Roth IRA that has the same owner for both.
  • from a SIMPLE IRA to another SIMPLE IRA, traditional IRA or SEP IRA that has the same owner for both. If the SIMPLE IRA has not satisfied the two-year requirement, the transaction is reportable
  • From a qualified plan to another qualified plan, where the employer is the sponsor for both plans. Transfers can occur between different types of qualified plans, when the assets are being moved between qualified plans sponsored by the same employer.
Note: For these transactions (above) the trustee-to-trustee transfer is a nonreportable transaction, which means that no 1099-R or 5498s are issued for the transaction.
   See caution in footnote:[1]
The IRS uses the term trustee-to-trustee to indicate that the check or other asset is made payable to the receiving financial institution (or other entity) for some reportable transactions. Examples include:
Note: These trustee-to-trustee transfers are reportable, and a 1099-R is required to be issued for the account/plan from which the funds are distributed, and, if the receiving account is an IRA or HSA, the appropriate Form 5498 must be issued for the receiving account.
Important: The Tax Cuts and Jobs Act of 2017 repealed the option to recharacterize Roth conversions, for Roth conversions done after 2017. As such, only regular contributions to traditional IRAs and Roth IRAs may now be recharacterized.
Referring Cite
Additional Helpful Information
  • Non-reportable transfers between accounts can occur for an unlimited number of times during any period. This is unlike rollovers between IRAs,  where only one distribution can be rolled over from an IRA to another IRA ( of the same type)  during a 12-month period. For this purpose, ‘same type’ means:  
    • traditional IRA to a traditional or SEP IRA; 
    • a SEP IRA to a traditional IRA or another SEP IRA,
    • a SIMPLE IRA to another SIMPLE IRA  or to a SEP or traditional IRA after the two-year period.
  • If the movement of assets from a qualified plan, 403(b) or governmental 457(b) plan is done as a trustee-to-trustee transfer, where the transaction is a direct rollover, there is no withholding on the distribution
  • ‘Trustee-to-trustee-transfer’ often refers to the means of delivery and not necessarily the type of transaction
   
[1]Some IRA owners may way to ‘expedite’ such transfers by having the delivering financial institution give them a check for the amount, instead of waiting for the transfer to be completed between the two financial institution- as such transfers can take days or weeks, depending on the type. Individuals who opt to have the check given to them should exercise extreme caution when the check is requested. This is even more important for inherited IRAs (beneficiary IRAs). For instance, that individual should:
·Check to make sure that any paperwork completed is a ‘transfer’ request and not a distribution request.  
·Make it clear to the issuer that a 1099-R should NOT be issued for the amount.
·Ask the issuer for a letter or some other confirmation that the transaction is a ‘nonreportable’ transfer, and provide it to the receiving financial institution.
·Get confirmation from the receiving financial institution will deposit it as a nonreportable transaction, and ask for assurance that they will not issue a 5498 for the amount.

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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