Non-spouse inherited IRA rollover/transfer?

"top·ic (t p' k): n. The subject of a speech, essay, thesis, or discourse. A subject of discussion or conversation."

I was referring to the fact that it has nothing to do with "Non-spouse inherited IRA rollover/transfer? Options" (the TOPIC of this thread). Nothing either one of us has said has added insight to Rich's original question about inherited IRAs. I would be happy to discuss it openly so that others may also be exposed to our varying point of view, but start a new thread (or "topic", if you will).

Have a look back over the previous posts in this "topic." The first remark I made was as follows: "For sure. I wonder if would be sufficient reason to sue for damages, if the false information resulted in a financial loss. I wonder what a court would decide." (end of quote) It seems to me that query is relevant to the original poster's concerns, or rather to what another poster said about those concerns.. All subsequent remarks on my part were responses to your statements, which, I suppose, could have drifted away from the original question somewhat. But, still, they do touch upon issues related to financial planning.

Rich, I haven't read the replies to your post (yes was back in Yosemite) but I'd suggest having your relative set up an IRA-BDA through the custodian for her father's IRA, and have them transfer her share of the IRA to it. She can just make like she's leaving everything there. This is the "path of least resistance" for the change of title for the account.

Simultaneously she should open an IRA-BDA through Fidelity and request a TOA of the original account using ACAT. She will need to include a copy of the death certificate, with the account application. The other custodian doesn't need to get involved if you do it this way. I did one of these recently (Raymond James to Fido) and it went smoothly.

And in general, I think this is the best approach when moving assets from one custodian to another. If you tell the former custodian your intention to transfer assets out, they'll do everything they can to discourage you. Don't even bother...use ACAT and the assets just journal over.

-Tad

If her dad's account was directly with the custodian (especially if the custodian had no-load funds), I'd tell her to do that in a heartbeat.

However, to me at least, it's somewhat more complicated than that:

• Her dad's IRA is run by a financial advisor affiliated with AIG(American General Securities)/American Funds (or at least one who uses AF as the custodian for his clients' accounts). Some of the funds in the IRA are not AF funds (I recall a Washington Mutual fund on the statement), but the beneficiary claim form is from American.

• My relative's share is north of 0K, so the advisor isn't thrilled with losing it. My relative had to talk with him for over 20 minutes insisting again and again she wanted to roll it to Fidelity before he told her how to fill out the distributions option of the claims form,

• If she does want to open an IRA-DBA there, he's making it sound like she needs to sign up to be a client. In addition to the claims form (which is clearly a straight-from-American form), there's a "account worksheet" form from AIG with his name pre-filled in a number of places.

• It looks like AF is a load house. The Bond Fund of America, for example, appears to have a 3.75% load. I'd hate to have my relative pay thousands of dollars in loads for an account that'll only be open for a month or so.

• She's worried the advisor will intentionally or not mess things up. He already (mistakenly) told her she could take a "60-day rollover", for example.

One thing we've wondered is if there's any way to cut him out of the loop -- like sending the claims for straight to American and so attempting to open an IRA-BDA directly with them and then doing the ACAT.

-- Rich Carreiro snipped-for-privacy@rlcarr.com

Answering my own question -- it turns out we can't. American only sells through financial advisors -- you can't even get forms without being hooked up with an advisor.

-- Rich Carreiro snipped-for-privacy@rlcarr.com

Rich, you still should be able to do this. The distribution to the IRA-BDA could be done in-kind so there shouldn't be any loads assessed. It is correct that she needs to sign on as a client even if only for a short time period -- that's just a regulatory reality. It's going to be a new account owned by her, and so far the only person signing a form with the custodian is the decendent, correct?

That Washington Mutual fund is probably one of the AF family so maybe all of them are? If so it's possible that she would need to sell all funds and move to a money-market, if none of the funds can be custodied through Fidelity retail (I forget how that works with AF). That step may need to be done to make the transfer work. Generally "liquidate and transfer" requests via ACAT have mixed results, and the delivering firm may not honor them. If it's in money-market that should be a straightforward ACAT transaction...or put another way, "transfer all holdings in kind" typically works if the only fund held is a money-market fund, because tagging along with it is "and liquidate and transfer any MM funds."

It's not a bad thing to have to work with an advisor, someone needs to handle the paperwork and transfer to the IRA-BDA. And as I said above, she does need to become a client just to do the distribution to the IRA-BDA. Maybe get someone else on the AF list if this guy is being a pain in the neck.

-Tad

I've been told (and given the cite to the Regs.) that the bar on "rollovers" does *not* include a check being made out to the receiving inherited IRA (like when someone moving a 401k to an IRA asks to be sent a check made out to "Fidelity Investments FBO Jane Doe, IRA" -- even though a check is cut and no ACAT transfer happens, that still counts as a direct trustee-to-trustee movement because the check is non-negotiable by Jane). So why can't AF just make out an analogous check and send it to Fido (or my relative) without opening an account (or opening a "phantom" account that exists just long enough for the check to be cut and cashed)?

Correct. So far only the decedent has signed anything with this advisor.

Well, according to Fido's website, at least some American Funds (like Bond Fund of America) can be *bought* through Fidelity's website (I just entered and cancelled an order for ABNDX), which seems slightly odd to be given that American Funds's website says their funds can only be bought through an advisor), so perhaps that can be custodied there.

I appreciate you're an advisor too, but that paperwork is no big deal and (aside from the rules imposed by AF) no advisor needs to deal with it. It's not complicated.

As I said, the main issue is that my relative has a very bad impression of the advisor. He gave her the runaround for close to a half-hour despite being told directly what she wanted, and then suggested something (a "60-day rollover") that would break the inherited IRA and cost my relative tens of thousands of dollars in taxes.

-- Rich Carreiro snipped-for-privacy@rlcarr.com

That's a good question. A check to Fidelity F/B/O an existing IRA-BDA should work. But a) it needs to be made out the right way and b) make its way through the mail and c) Fidelity probably won't accept the check without a specifically worded letter from the custodian...saying it's just a custodian-to-custodian transfer, not reportable, naming the decedent, and some other details. That's more stuff for the former custodian to mess up and more steps where you lose track of what is going on! If you use ACAT the steps are a bit simpler and you can monitor each step. There's probably less risk of a 1099 being coded incorrectly as a taxable distribution, and if it happens it's an easy fix. Checks are messy, I avoid them as much as possible and use ACAT instead.

[For posterity: I keep saying ACAT...ACAT stands for Automated Customer Account Transfer. It's an electronic system that links brokerage firms, and is the easiest way to move securities from one custodian to another. A nice thing about it is that you don't need to inform your former custodian/broker of the transfer -- you intitiate a transfer at the receiving firm, not the delivering firm.]

I was thinking of the advantage of having someone to shepherd it along and correct mistakes, instead of relying on anonymous 800# support from Bangalore! If you have one person to call up and bug it helps things. Maybe not this specific advisor, but someone at AIG/AF.

-Tad

Thanks for explaining this. I hate to appear ignorant (I am ignorant, I just hate to APPEAR that way), but here's two questions:

1. This apparently applies to rollovers/transfers in kind of stocks and bonds. Does it also apply to cash? For example, could I close out a brokerage IRA at Merrill Lynch and transfer the cash via ACAT to Fidelity mutual funds and buy Fidelity mutual funds?
2. Is this process also available for regular (non-IRA) accounts?

If so, how does an investor or beneficiary initiate ACAT - is it as simple as contacting the new custodian?

-HW "Skip" Weldon Columbia, SC

I've done plenty of ACATs over the years as I moved from broker to broker before I settled in at Fido. From my experience, cash comes over as casg.

Once the account is open at the new broker/custodian, follow their procedures to initiate a transfer. For example, at Fido you can fill out their "Transfer of Assets" form or (depending on who the source is) you can submit the info through Fido's website instead of submitting a paper form. Once that's done, the new broker takes over and you just sit back and wait for the transfer to complete.

-- Rich Carreiro snipped-for-privacy@rlcarr.com

Skip, you might never see the term ACAT used, it's the system that works behind the scenes when you request a transfer of assets between brokerage accounts. Yes, cash comes over too. For that Merrill to Fidelity example, you would open a Fidelity brokerage account and fill out a transfer of assets request (whatever they call that form) and attach a recent statement for your Merrill account.

This works with all sorts of accounts, not just IRAs, but the titling of the accounts at either end generally needs to match.

-Tad

Must the new custodian be a brokerage account? For example, could the Merrill account be liquidated, and the cash sent straight to one of Fido's Money Market Funds? (And once there, allocated to several other funds, all without use of a Fido brokerage account.)

I ask this because the usual approach is to open a new account at Fido, Vanguard, T Rowe Price, etc., then for the investor/IRA owner to have to go to the old custodian and request a check. Many investors have trouble with this because of the natural reluctance of the current custodian to easily give it up.

-HW "Skip" Weldon Columbia, SC

That stuff all goes into the application for the Fidelity account. Once the account application has been made and the account is set up, an account number is generated by Fidelity. The existing custodian then makes the check out to Fidelity with the account number in question on it. Fidelity knows exactly what it is and what to do with it then because it was already set up that way. Or so it would appear to me - exactly analogous to how one does a 401k rollover to them, though with a different account app form. (Take a look at their app - a pdf of it is easily accessible on their site - it's got places for all the stuff you mention, including the decedent and date of death)

I don't think that's possible for this - it is a new account and the ACAT requires the accounts to be registered to exactly the same owner and name, doesn't it? This new account is different and differently owned from the account from which the assets are being transferred.

Well, my relative called Fidelity, and they strongly advised her to open the account with American Funds and then submit a a transfer of assets form.

For what it's worth, the Fidelity IRA-BDA application itself only lists two funding options -- a transfer from another Fidelity IRA-BDA and a transfer from an indentically-registered IRA-BDA at another institution.

-- Rich Carreiro snipped-for-privacy@rlcarr.com

Perhaps it's different with the retail side of Fidelity, but institutional recently added a requirement that a letter be sent from the prior custodian with a bunch of details, when the IRA assets come over by check. I had one earlier this year where the letter-exchange didn't happen soon enough (delay by the soon-to-be-former custodian) and the original check-request was canceled by the former. But there was no way to know this was going on really, from both sides things appeared to be on track. It wasted two months and required multiple sets of paperwork.

And in general I'd say I see maybe a 1/3 - 1/4 failure rate (meaning, delay or some mistake to correct) on any non-routine IRA transfer, and funding a BDA with a check from the decedent's IRA would certainly qualify. Similarly 401k rollovers at prior-employer plans go better if you use custodian's option, if offered, to do a 401k-to-IRA rollover within the firm, and then transfer the IRA to your preferred custodian. No surprise that keeping assets within the custodian is a more straightforward process than moving them out -- for several reasons!

I'm recommending that Rich do an IRA-to-BDA transfer within AIG/AF, and then BDA-to-BDA, so yes he can use ACAT for this second step. You're correct that you couldn't use ACAT for moving money from the decedent's IRA to a BDA at Fidelity.

Oh, one caveat on all this...ACAT often triggers a fee from former custodian ($50 is typical) but it depends on the account type and custodian. Worth it, IMO, to avoid a potential several-month delay.

-Tad