Trustee-to-trustee direct IRA transfers - IRS "required" Letter of Acceptance

[Retired, but still reading]

Retiree has multiple Roth IRA annuities with lifetime income riders.  Retire wants to start lifetime monthly annuity income streams, and have it deposited to his Roth (non-annuity) IRA (as a direct trustee-to-trustee transfer) to continue sheltering earnings from taxes, until the funds are spent for living expenses.  While payer custodian is willing to do the transfers, they insist that  each monthly transfer request for each contract be accompanied by a fresh Letter of Acceptance from the payee trustee.  They say that IRS "requires" an LOA for each transfer and that a standing LOA is not permitted.

I've done some research on this - IRC Section 408, IRC Section 402(f), IRS Publication 590-B, IRS Form 1099-R Instructions, IRS website, etc. and can find nothing about an LOA requirement.  I can't access it, but I'm pretty sure that Revenue Ruling 78-406 (1978-2 C.B. 157) introduced the direct transfer concept and elaborated on the distinction between a direct transfer and a rollover.  Don't know if there's anything in it about "required" LOA's.

As you can imagine, with multiple contracts and monthly transfers, it's burdensome on the retiree and also on the payee trustee.  It's definitely got to be painful & expensive for the payer trustee to process these monthly transfers manually as one-off transactions.

Can anyone confirm or dispel the myth of IRS "required" LOA's for direct transfers (with cite)?

 Thanks for your help!!

[Bird]

I don't know the answer to your question but I don't think annuitized payments (for life or a period of 10 years or more) are eligible for rollover.

[Belgarath]

In addition to Bird's comment, (with which I agree, without doing any additional research) I can only offer the language under 1.401(a)(31)-1, Q&A-6. This allows the Plan Administrator to adopt "reasonable" procedures. If you read it, unless you determine A-6(b) to override A-6(a), I think you can make a case for this being reasonable, but not required. If the Plan Administrator determines that it is "reasonable" then you don't really have a leg to stand on, short of having the participant go through a formal complaint process/lawsuit/etc. - and good luck with all that!

P.S,. - I was assuming that these payments were coming out of a qualified plan and going to an IRA, but as I look at the specific forum title (which I didn't previously) , perhaps that isn't the case. In which case, I don't really work with IRA's and haven't done any research on your question re IRA to IRA transfer, so you'll likely want to ignore my comments!

 

[Peter Gulia]

The inquiry seems to be not about a rollover but rather a within-IRAs transfer from a Roth IRA insurer to a Roth IRA custodian.

 

I’ll leave for others questions about whether this is feasible under Federal tax law.

 

Whether it is proper for an annuity contract’s insurer to require an insurer’s or custodian’s letter of acceptance for each transfer (rather than one blanket letter for a series of transfers) is governed by the terms of each annuity contract.

 

Those terms might be interpreted under a State’s law of contracts generally, insurance law particularly, and, for a variable annuity contract, Federal and State securities laws.

[Luke Bailey]

The "eligible rollover distribution" requirement to be able to roll over a distribution from a qualified plan to an IRA does not apply to a rollover from one IRA to another, so in theory, if not an RMD, I suppose you could roll over one annuity payment per year. In fact, IRC sec. 408(d)(3) specifically refers to rolling over distributions from individual retirement annuities. But the other 11 payments, if made monthly, would presumably be barred by the one rollover per year rule. I will withhold comment on whether there would be a way to characterize a payment under an annuity contract as a trustee-to-trustee transfer if the payment went directly from one IRA to the other. It would seem to me that based on the nature of an annuity and the contract terms, including nonassignability, a payment from one custodian to another might still be characterized as a constructive 60-day rollover if the IRS wanted to get picky. Be careful.

[Retired, but still reading]

Thanks for your comments.  I'm talking about direct trustee-to-trustee transfers between Roth IRA's here, so the one rollover per year restriction doesn't apply.  I managed to locate RR 78-406 - the original guidance differentiating rollovers from direct transfers and have attached it.  My question/issue isn't about permissible transfers of the monthly income stream - that can be done with Roth IRA's.  My issue is the LOA  requirement by the disbursing trustee.  After all my research, there's obviously no IRS requirement for an LOA.

irs 78-406.pdf

[Appleby]

On 10/19/2020 at 10:42 PM, Retired, but still reading said:

Thanks for your comments.  I'm talking about direct trustee-to-trustee transfers between Roth IRA's here, so the one rollover per year restriction doesn't apply.  I managed to locate RR 78-406 - the original guidance differentiating rollovers from direct transfers and have attached it.  My question/issue isn't about permissible transfers of the monthly income stream - that can be done with Roth IRA's.  My issue is the LOA  requirement by the disbursing trustee.  After all my research, there's obviously no IRS requirement for an LOA.

irs 78-406.pdf 141.14 kB · 9 downloads

I don't recall if the IRS requires a letter of acceptance. But, another regulatory body might-like the SEC. There are certain requirements in place for trasnfers, such as the delivering custodian being required to either honor or deny a transfer request within a certain time frame; and, if the request is denied, an explanation must be provided. Part of this requirement is that a transfer must occur between permissible accounts. Both custodians ensure that this requirement is met, by stating/confirming the type of accounts involved in the transfer; providing the assurance needed that the transaction is non-reportable . The letter of acceptabcle serves that purpose.