So, I finally pinned hubby down to rollover 2 401Ks today, one at T Rowe Price and one at Charles Schwab...Charles Schwab took about 10 minutes to ask 6 identifying information questions on the phone, and they are sending the properly labeled check payable to USAA FBO hubby acct#xxxxxxxxx to us tomorrow, to submit to USAA within 60 days with deposit instructions into his existing traditional IRA. Easy. Fast.I've done this 4 times before for myself with various 401k companies, and the Charles Schwab experience has always been the norm.Then there's T Rowe Price.Does this happen with a lot of brokerage firms, or am I just lucky?T Rowe Price takes 2 calls. It's going to take a week or two. The first time we call specifically saying we want to do a roll over to another institution, USAA, they send us a form that would only let us cash out his 401K complete with penalties....so we call again, and this time I talk to the agent, who offers to again, send us a check in hubby's name with the penalty/withholding to do an indirect roll over on our own.After I stop rolling my eyes, I ask some very specific questions. It is finally determined they have no direct roll over path without an act of Congress. You can't do it on the phone, you can't do it online, you can't do it by mail. YOU can't do a direct roll over at all. T Rowe Price requires a request form directly from USAA, signed by hubby, returned to USAA with a copy of his latest statement 1st page, and THEN USAA can send direct rollover instructions to T Rowe Price to transfer the funds on USAA letterhead. Heaven forbid T Rowe just write the check out to USAA FBO Hubby and skip 2 weeks of aggravation, NOOOOO.And the best part is the phone rep trying to make it sound like it's for my protection. They'll send us a check we can cash anywhere right now with just a call, but they won't send us a check we can deposit into a different IRA...This just irritated the daylights out of me today...maybe I need decaf?
We have heard many times on this board that if you do not do a direct custodian to custodian transfer, the custodian is required to take withholding from your check. You then must replace the withholding portion from other sources or it gets treated as penalty distribution.So TRowe Price is the traditional way. That you talked others into not taking withholding is great, but check your numbers carefully. I think its the law.Fortunately most people do these conversions rarely. Once for every employer with a 401K program, and once its converted to an IRA, transfers get easier (but you still have the withholding problem when you get a check in your name).
T Rowe Price wouldn't send the payment directly to USAA either even when provided with the necessary information. :(USAA handily provides the mailing address and a pre-done form letter and everything that you just add your account # too and can send it to other brokerages, but nope, not good enough for TRP.So, they will likely get to sit on hubby's funds for 2-3 more weeks.The check being written directly to USAA qualifies these transfers as a direct rollover as long as we don't dawdle in mailing it to them. Thankfully we haven't had withholding problems so far in anything we've moved previously! Glad to hear I'm not alone though.
I have always heard that it is best to initiate the paperwork with the receiving institution since they have some incentive to "pull" the account from the sending institution. The sending institution has no incentive to "push" the money.Bob
*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.
and they are sending the properly labeled check payable to USAA FBO hubby acct#xxxxxxxxx to us tomorrow, to submit to USAA within 60 days with deposit instructions into his existing traditional IRA. Easy. Fast.That statement is contradictory.A transfer is typically done FBO and is not a taxable event and has no requirement that it be deposited within 60 days.a rollover is typically not done FBO and it is a taxable event requiring deposit within 60 days.YOU can't do a direct roll over at all. T Rowe Price requires a request form directly from USAA, signed by hubby, returned to USAA with a copy of his latest statement 1st page, and THEN USAA can send direct rollover instructions to T Rowe Price to transfer the funds on USAA letterhead. Heaven forbid T Rowe just write the check out to USAA FBO Hubby and skip 2 weeks of aggravation, NOOOOO.This is the correct way to do it. Direct transfer from one custodian to another. This way, T Rowe is assured from USAA that the receiving account is titled and structured correctly. Again, this is a direct transfer not a direct rollover.they send us a form that would only let us cash out his 401K complete with penaltiesIt is not uncommon for an institution to charge an account closing fee though it is uncommon on a 401k. Are you sure this was a 401k and not an IRA?And the best part is the phone rep trying to make it sound like it's for my protection.It is. The penalties for doing it wrong are significant. USAA could have easily assisted you by helping you complete a direct transfer request that USAA would then have submitted to the other companies to request the funds - no calls needed from you. I know because I complete the same forms on a frequent basis for my company.
Hawkwin: While I agree substantively with your points, my experience int eh real world is that most providers do exactly what Schwab has done as reported by the original poster. They really don't want to be bothered with having to perform different procedures to meet the requirements of each of the potential IRA rollover custodians. I worked at Schwab when this procedure was worked out, and our "competitive intelligence" (i.e. we called those with whom we had contacts - which was most of the major players and a lot of the smaller players - it being a small industry with a lot of people moving around - we've worked with someone who now is somewhere else...) and that seemed to be the concensus way of doing it.Yes, the "direct approach" is a sure fire way of accomplishing the rollover without any possibility of it ever being deemed not a real rollover, but the method of issuing the check payable to the IRA custodian is also sure-fire - absent someone forging a signature and cashing the check (unlikely, since a bank taking such a check would certainly be suspicious of a signature reading "USAA..."To be honest with you, my experience is that when dealing with some (not all) insurance company based service providers, getting money from them is more difficult. Lots more paperwork. Lots more time involved. Draw your own conclusions as to why.
I had the completely opposite experience with T. Rowe Price. Both my and my wife's 401ks were with TRP, I transferred both of them to TD Ameritrade IRAs over the phone (1 call) and TDA had the checks within 4 business days.
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