*IF* the participant (former employee) can cash the check, then there is a requirement to withhold according to law (20%) for federal income tax purposes. *BUT* the industry norm these days is to make the check payable to the IRA custodian FBO (For the Benefit OF) the participant. If done that way, the participant CAN'T cash the check and withholding is not required. The participant then merely becomes the messenger to deliver the check to the IRA custodian. Schwab follows this process. Not sure whay T. Rowe doesn't. Somewhere (and I'll see if I can find it - I don't have it handy because EVERYONE in the industry - except T. Rowe - knows that this is the case) the IRS has indicated that the Schwab approach is OK as a direct rollover.
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