I have always tried to use the trustee-to-trustee method
when rolling over IRA CD proceeds from one bank to another. However, the people
at the branch of both the receiving bank and sending bank are no longer quite
comfortable with this method.
The IRS has made it very complicated to understand
reporting requirements by making one Form 1099R and one Form 5498 to cover all
kinds of retirement plans, including employer retirement plans, traditional IRA,
Roth IRA and other types of IRAs. They are simply refusing to assist in trustee-to-trustee
transfers or do not fill in the transfer forms correctly. I must therefore take
the distribution from one bank and roll it over to another bank, even though I
do not need 60 days to roll over.
I am aware of the 12-month
waiting period for rollovers with respect to distributions from the same banks
that were involved in the rollovers. What I am not clear about is whether 20 percent
mandatory withholding of tax applies even when the distributing bank is told that
the distribution was for a once-in-12-months rollover, which is permissible. I
do not think banks are applying this withholding, but I want to make sure.
Your money may be working for you, but apparently your bankers
I can't understand why the banks
would be reluctant to do a direct rollover, as
that is the simplest transaction to accomplish.
An indirect rollover is more complex, as the receiving
institution has to determine if the recontribution
is an eligible rollover (i.e., within the 60 days).
Generally, if an eligible rollover distribution is paid directly to you, the payer
must withhold 20 percent of it. This applies even if you plan to roll over the
distribution to a traditional IRA. The amount withheld is part of the distribution.
If you roll over less than the full amount of the distribution, you may have to
include in your income the amount you do not roll over. However, you can make
up the amount withheld with funds from other sources.
can avoid withholding by choosing the direct rollover option, which your bankers
aren't capable of doing.
For further information on the mandatory
withholding see Form