Trustee to trustee sep via check

[PATAX]

Client is under 59 and has several retirement accounts (sep-ira) in certificate of deposits at bank that are maturing. Not paying much interest. He wants to do trustee to trustee transfer to his sep at broker. He tried to have it done by signing trustee to trustee transfer forms with broker, which sent it to bank. Bank still has not done trustee to trustee, and apparently renewed the sep cds. Can he go directly to bank and have bank close sep cd accounts and have bank prepare a check directly payable to broker? Will this still qualify for trustee to trustee transfer, or will bank issue 1099-R?

[IRonMaN · Accepted solution]

It should, but even if they issue a 1099R, it's not a big deal as long as the money gets transferred timely.

[PATAX]

Thanks Ironman.

[IRonMaN]

You betcha

[qbteachmt]

"has several retirement accounts (sep-ira) in certificate of deposits at bank"

It's rightfully the other way around. The CDs are the investment vehicle in the accounts. CDs, stocks, bonds, ETFs, and even money market are some of the investment options.

This is a type of churning. You don't have "CD accounts." You have account(s) and invest the funds into something, including CDs. The available options depend on where the account is held, of course. A Bank will force multiple accounts, which generates more fees.

One way to handle this is to initiate a Pull, not a Push, transfer. The broker to receive can start the request for the transfer.

If your taxpayer client submitted a timely request, and the CDs got renewed anyway, they should be able to have the early cancellation fees waived and suffer no penalty.

In the future, they should ask if in-kind transfers can be done, as well.

[PATAX]

Thanks QB. It was a pull transfer, I.E the broker initiated the transfer paperwork.

[qbteachmt]

Oops; reading is fundamental. Again, if that request is dated before the renewal and there was clearly adequate time to respond, your taxpayer should be held harmless. In this case, I would not transfer in-kind and then cash out for a different investment, if that moves the early cancellation to the broker that wasn't responsible for the delay. Whoever didn't do their work timely, is who should waive the fee or reimburse for it in that account.