Direct Rollover 401k to IRA

[PensionPrisoner]

Hello Pension Gurus,

Is it required that a direct rollover check from a 401k to an IRA have the verbiage "FBO Participant Name" in the Payable To?

The receiving IRA Custodian has asked us to take the "FBO" off the check.

Just to note:  This is a direct rollover via participant distribution request, not a trustee to trustee transfer. 

[Bird]

It's common but I don't think it is required.  I'd push back and ask why it's so important to take it off...

Personally I think it's a good idea to have "IRA FBO..." or similar language so the participant can't deposit it into an after-tax account.

[RatherBeGolfing]

Why is it a problem?  There are no regs or statutes on how a check must be written for a distribution or rollover.  Common sense says it should be issued in whatever format required for it to be correctly deposited.  If the IRA custodian wants a certain language (or certain language omitted) for identification purposes (to make sure it gets credited to the correct account),  I don't see a reason to question it unless its unreasonable.  In fact, Id rather have a few extra steps at this point than a possible stale check floating around.

Are you unable to issue the check per the custodians request?

 

[PensionPrisoner]

Thank you both for your input.  There was no problem, I issued the check as requested.  I've always had the understanding the FBO was indeed required, but after 24 years in Pension Administration I find I know very little...so I was just curious as to other professionals' opinion.  

[Luke Bailey]

PensionPrisoner, if you are trying to do a direct rollover by placing a check in the possession of the distributee participant, Treas. reg. 1.401(a)(31)-1, Q&A's -3 and -4 provide guidance regarding to whom the check should be made out. The last sentence of Q&A-4 specifically provides for the use of "FBO John Smith" in some circumstances involving a rollover to a qualified plan, but as you will see if you read it, a different way of completing the payee is suggested for IRAs. I think the IRA custodian you are dealing with is probably trying to closely follow this reg, even though it is probably not necessary to do so. But doesn't hurt.

[PensionPrisoner]

Perfect.  Thank you!!  That’s exactly what I was looking for.