IRA rollovers can be done "annually"--client has several IRAs wants to RO each to get higher return

[jeffmcpa2010]

Is there a question here?

[Terry53029]

You already asked this question. See the answers for your earlier post

[qbteachmt]

I didn't notice this: "wants to RO each to get higher return"

Yeah, that doesn't require a rollover. The return is the same no matter which Account it is in. The return comes from the investment in the account, not from the account. However, perhaps what they want is better investment options, or even a self-directed IRA.

[Greta]

Client has three Traditional IRAs invested in certificates of deposit at a low 2% interest rates in 3 banks. He wants to roll them all over into a single fixed account that pays 4.6% fixed rate. Can we aggregate the three accounts and call it a one-time rollover during the allowed 12 month period? There should be no bank penalty for cashing in the IRAs since he is elderly. That is, if the bank is unwilling to write a check payable to "Vanguard FBO client's name", which would be a clean direct rollover. (I've finally got the Details Box open so I can explain my question, sorry about all the previous threads.)

[jeffmcpa2010]

Generally, (In my opinion,) the best way to do transfers is to go to the investment advisor who will end up with the accounts. Usually they can have the client sign paperwork, and have the investments transferred directly to them. Easier for the client, and let the person making their living from dealing with these accounts do the work. 

[Slats]

I would not rely on "bundling" these separate CD IRA's, hoping to pass the once a year direct rollover by the owner. I would have the transfer done Trustee to Trustee. It should be foolproof that way and leaves the option for the client/owner to do a self-directed later in the year if desired. Whomever the recipient is should be able to work seamlessly with the current holder. He may take a ding on his earnings since he is cashing out early, but like you said, no penalty involved, and a promise of better APR and returns. 

[qbteachmt]

"Can we aggregate the three accounts and call it a one-time rollover during the allowed 12 month period?"

If he submits them as Direct (trustee to trustee), it is not called a rollover and that rule does not apply. It's only when the taxpayer has access to the funds in between, giving them possible access to use the funds in the interim, that it falls under rollover rules.

"There should be no bank penalty for cashing in the IRAs since he is elderly."

You're not "cashing in" unless you intend to Lump Sum the money out of the IRA entirely? Now it is a taxable distribution and they no longer have that IRA account, no longer have any tax shelter of those funds, no longer are subject to RMD, etc. Is that what really is intended?

"into a single fixed account that pays 4.6% fixed rate"

Some types of investments should not be held inside of an IRA. Holding a Treasury security inside of an IRA removes the tax free aspect for State income tax, for instance. The reason not to do CDs is that the money is tied up for the length of the CD and CDs are still not earning much; not even like a high yield savings account or a Treasury note or bill.

Example: My one client that was recently widowed had a weird ladder of odd amounts of CDs from taking RMDs and using them to buy CDs. The highest CD was a 27-month and I think it paid .08% to July 2024 (that is not a typo). We lump sum distributed one IRA under $10,000 and one around $50,000 (inherited) because, at 86, she really should not need to worry about RMDs which were pretty high, they were a lot of the account balance, anyway, so just take it all, pay taxes on it, and move on. She forfeited the under $100 annually all these various CDs would have earned by cashing out most of them early. All these funds went into Treasury Direct and every investment there is over 4%. These are able to be sold on the secondary market, should you need the funds before maturity; otherwise, you can let it be used for repurchases. I helped her understand the Bond mutual funds she had held forever and she sold them and moved into some high yield low risk ETFs. She now has cash flowing and good growth.

"That is, if the bank is unwilling to write a check payable to "Vanguard FBO client's name","

Any institution holding an IRA account has to be willing to "send the funds" and they don't transfer by check, nowadays (electronic banking), when it is to another trustee. The Taxpayer would get a check, if they want to do an indirect (manual) Rollover and not do a Direct Transfer, or they want to do a lump sum distribution (or any distribution).

The destination institution should be able to help him with all of this. They are supposed to know the rules.

[Greta]

Thank you for detailed response. You are right, it's not a rollover, rather a "transfer". The risk-averse client had three IRAs, each invested in a 5-yr CD when rates were minimal but some he locked in 3%. Breaking the CD has a minimal bank penalty that is waived if it's a senior's IRA. Now that CD rates are better, it makes sense to transfer to a brokerage that offers higher CD returns than our small town banks, and simpler for his heirs. (These are not US treasuries that are already sheltered from state tax.) I think it was OK for him to sit out the lean lower yields for the sake of safety. All three banks were super-easy to deal with, they made out checks payable to Vanguard FBO Client, and he mailed them to Vanguard, so not too much trouble on his part. Sometimes brokers are not fond of CD investments that pay little in commissions.

[qbteachmt]

"All three banks were super-easy to deal with, they made out checks payable to Vanguard FBO Client, and he mailed them to Vanguard,"

From the IRS:

"IRA trustees can accomplish a trustee-to-trustee transfer by transferring amounts directly from one IRA to another or by providing the IRA owner with a check made payable to the receiving IRA trustee."

Yay! It's important to never have them payable to the taxpayer, in this scenario.