transfers and rollovers

L1: transfers and rolloversHi,

What is the difference between an IRA Transfer and a direct rollover? I am getting conflicting information from my IRA Custodians. I am attempting to move dividends (have a SEPP universe) from one custodian to the custodian that actually sends me 72T distributions. I thought rollovers were always about rolling over retirement monies such as a 401K to IRAs and transfers were about never personally receiving IRA monies. One of my custodians is saying that they received a rollover from my other custodian because I had the sending custodian wire the funds to the receiving custodian with an FBO of my name. Also, are 1099-Rs used to track transfers as well as distributions? Some say with a transfer there is no IRS notification, but that does not sound right.

Thanks for your help,
Don2006-07-26 13:21, By: don, IP: [24.32.37.113]

L2: transfers and rolloversTo some degree it is a matter of terminology and the end results are about the same. Direct Rollovers are typically associated with moving assets fromemployer sponsored plans and an IRA Transfer moves assets from one IRA to another.
All IRA Custodians/Trustees annually file form 5498 with the IRS – at a minimum it will contain the ending balance (or zero) for the year and if I remember right, any transactions are also reported – you can verify by reading the instructions to form 5498 at www.irs.gov.

2006-07-26 14:00, By: Gfw, IP: [74.136.84.204]

L2: transfers and rolloversinterestingly enough, I only received 2 5498”s from custodians.. One was for a direct rollover and the other was simply the ending balance. I have 2 other IRAs for which I received no 5498. 2006-07-26 14:14, By: squeaky, IP: [71.129.85.129]

L2: transfers and rolloversThe wiring of those funds from IRA to IRA should be handled as a direct transfer, and no 1099R is needed. That said, some custodians issue a 1099R anyway. The 5498 for the incoming funds is handled the same way, not needed for a direct transfer to show a contribution, but some custodians issue them anyway.
The 1099R will cause you to have to report the rollover on your Form 1040, and the transfer of dividends greatly increases the chances of your year end 1099R losing the “2” code in Box 7, and forcing you to file a 5329 to claim the SEPP exception from penalty.
The term direct rollover seemed to evolve to describe employer plan to IRA transfers as gfw indicated. While these are physically handled as transfers, they MUST be reported on a 1099R and therefore on Form 1040 as rollovers. This is unlike an IRA to IRA transfer.
That said, why do you have these dividends transferred? They can”t be used to change your SEPP payment or you bust the plan.

2006-07-26 18:06, By: Alan S., IP: [24.116.165.157]

L2: transfers and rolloversHi,

My questions are trying to understand the IRS 12 month rule about moving IRA funds among different custodians. As I understand the rule if I take personal receipt of IRA monies and deposit them within 60 days with a qualified custodian then that transaction for the given account is subject to the 12 month rule, but has no tax consequence. On the other hand if I do not personally receive the monies and monies are wired/mailed between custodians then the transaction is not subject to the 12 month rule.

With respect to the dividends, I have two IRA accounts held by two different custodians that make up my SEPP universe. I only withdraw SEPP payments from one account and want to transfer the dividends from the other account.

Don2006-07-26 18:50, By: don, IP: [24.32.37.113]

L2: transfers and rolloversDon,
Your understanding of the 12 month rule is correct. That is why a custodian that issues a 1099R unnecessarily when you did a direct transfer, makes you report a rollover, and blocks you from doing another rollover for 12 months FROM either the receiving or issuing account. You could do a direct transfer, but the problem is that you won”t know if the custodian will handle it correctly. Sounds like they already messed up one of these.
With respect to the dividends, I understand that your SEPP universe consists of two IRA accounts, but your required distribution comes out of only one of them. But I could not figure the reason why you wanted to transfer dividends from one account to another instead of just leaving them in the account in which they were issued. There could be a few reasons to want to make that transfer, but are they worth the risks cited above?
2006-07-26 23:21, By: Alan S., IP: [24.116.165.157]

L2: transfers and rolloversHi Alan,

I have verified that the sending custodian is going to generate a 1099-R coded with a G۝

GDirect rollover and rollover contribution. Use Code G for a direct rollover from a qualified plan (including a 4
governmental section 457(b) plan) or tax-sheltered annuity to an
eligible retirement plan (another qualified plan, a tax-sheltered
annuity, or an IRA). See Direct Rollovers on page R-2. Also use Code
G for certain distributions from conduit IRAs to an employer plan and
IRA rollover contributions to an accepting employer plan. See Conduit
IRAs on page R-2.

And the receiving custodian is going to generate a 5498. Given this information does this mean that I am blocked for 12 months?

With respect to the dividends and the multiple custodians, not any one custodian offers all of the investment choices that I am using and I did not want SEPP distributions coming from the multiple custodians.

Thanks for your time,
Don 2006-07-27 01:06, By: don, IP: [24.32.37.113]

L2: transfers and rolloversNote that your post for the “G” code indicates it is only to be used for transfers between IRAs and employer plans. I thought your situation was strictly between IRAs. If so, the custodian is not handling it correctly and subjecting you to limited rollovers.
Hard to say what would happen. If the IRS sees that code they should realize it is not a rollover, but the generation of a 1099R would force you to report it as a rollover and hope the IRS looks at it as a transfer (which it is). But you should not be put in this position in the first place. The less exposure to the IRS, especially where a SEPP plan is involved, the better.

2006-07-27 19:11, By: Alan S., IP: [24.116.165.157]

L2: transfers and rolloversI thought I was being clever by going to the sending custodian and requesting monies be transferred (actually wired) to a receiving custodian. The transaction took less than 24 hours depending on what time the transaction was requested versus the 3 4 weeks by going to the receiving custodian who then contacts the sending custodian using snail mail. At this point in time, I believe I am still okay and will use the slower method for transferring the dividends.

Thanks Alan for your thoughts,
Don2006-07-28 01:40, By: don, IP: [24.32.37.113]