Retirement Plan Checks and 60-Day Rollovers

Generally, when you receive a check from your IRA custodian or employer plan, you have 60 days to rollover the funds to another retirement account, either an IRA or an employer plan. As with most retirement plan rules, this rule comes with two exceptions – one good and one bad. Let’s look at what happens when Lori receives a check.

Checks Payable to the New Retirement Account

A check that is payable to Lori must be redeposited in a retirement account by the 60th day after the receipt of the check. But Lori does not have a check payable to herself. She recently changed jobs and wants to move her 401(k) funds to an IRA. Her employer sent her a check payable to her IRA custodian fbo (for benefit of) her IRA account. Lori cannot cash this check; she cannot use the proceeds from this check; Lori can only forward this check on to her IRA account.

This type of check is considered a transfer or direct rollover of her funds from her employer plan to her IRA. This transaction is not subject to the 60-day rollover rules. If Lori puts the check in a drawer and forgets about it for three months, she can still forward that check to her IRA custodian.

Checks Payable to a Non-Spouse Beneficiary

In addition to changing jobs, Lori’s mother recently passed away. Lori was a beneficiary of her mother’s IRA. She wanted to move her share of the inherited IRA to an inherited IRA with the custodian where she had her own IRA. Unfortunately, her mother’s IRA custodian sent a check payable to Lori, not payable to her IRA custodian fbo her inherited IRA account. This check cannot be redeposited into Lori’s inherited IRA.

A check made payable to Lori from her own IRA can be rolled over within 60 days. However, non-spouse beneficiaries, which is what Lori is in this case, are not allowed to do 60-day rollovers. Lori has made the classic mistake that many non-spouse beneficiaries make. Unfortunately for Lori there is no way to undo this error.

The “Right” Way to Make Out the Check

What should have Lori done? Many times, the only option Lori might have to move her retirement funds could be taking a check from the IRA custodian or plan administrator. But if Lori does not want or cannot do a 60-day rollover, she should try and have the check made out in accordance with IRS guidance. IRS addressed this issue in IRS Regulation Section 1.401(a) (31), Q & A-4.

Q-4.  Is providing a distributee with a check for delivery to an eligible retirement plan a reasonable means of accomplishing a direct rollover?

A-4.  Providing the distributee with a check and instructing the distributee to deliver the check to the eligible retirement plan is a reasonable means of direct payment, provided that the check is made payable as follows: [Name of the trustee] as trustee of [name of the eligible retirement plan]. For example, if the name of the eligible retirement plan is ”Individual Retirement Account of John Q. Smith,” and the name of the trustee is ”ABC Bank,” the payee line of a check would read ”ABC Bank as trustee of Individual Retirement Account of John Q. Smith.” Unless the name of the distributee is included in the name of the eligible retirement plan, the check also must indicate that it is for the benefit of the distributee. If the eligible retirement plan is not an individual retirement account or an individual retirement annuity, the payee line of the check need not identify the trustee by name. For example, the payee line of a check for the benefit of distributee Jane Doe might read, ”Trustee of XYZ Corporation Savings Plan FBO Jane Doe.”

By Beverly DeVeny, Director of Retirement Education

Gregory Ricks & Associates is a Registered Investment Advisor.  We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk, including the complete loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

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