How Do I Cash My 401k Check Made Out to FBO and Me?
Learn how to handle a 401(k) check made out to you and FBO, including deposit options, identification requirements, and potential tax considerations.
Cashing or depositing a 401(k) check made out to “FBO” (For Benefit Of) and your name can be confusing if you’re unfamiliar with the process. These checks have specific handling requirements, and failing to follow the correct steps could cause delays or complications.
FBO Label: Its Purpose
The “FBO” designation on a 401(k) check ensures compliance with financial regulations and secure fund transfers. These checks are not standard personal checks and are typically issued when moving retirement funds between institutions or distributing assets from a retirement account.
When rolling over a 401(k) into an IRA, the check is usually payable to the receiving institution, with “FBO” followed by the account holder’s name. This structure helps maintain the tax-deferred status of the funds. If the check were made payable solely to the individual, it could be considered a distribution, potentially triggering taxes and penalties.
The “FBO” label also adds security. Since the check is payable to a financial institution rather than an individual, it reduces the risk of fraud. If lost or stolen, it is harder for an unauthorized party to cash or deposit it.
Steps to Deposit or Cash
Handling a 401(k) check made out to “FBO” requires following specific procedures to ensure proper processing. Financial institutions may have particular requirements before accepting these checks.
Confirm Payee Details
Verify how the check is made out. An “FBO” check is typically payable to a financial institution, with your name listed after “For Benefit Of.” This means it likely cannot be deposited into a personal checking or savings account. Instead, it is usually meant for a retirement account, such as an IRA or another 401(k) plan.
Check with the receiving institution to confirm deposit requirements. Some may require an endorsement, while others may not. Ensure the account details match the institution’s records. Any discrepancies, such as a misspelled name or incorrect account number, could result in the check being rejected.
Provide Identification
Financial institutions may require proof of identity to process an “FBO” check. A government-issued ID, such as a driver’s license or passport, is typically required. Some institutions may also request additional verification, such as an account statement or a letter from the issuing financial institution.
If depositing the check in person, bring all necessary documents to avoid delays. For online or mail-in deposits, check the institution’s specific requirements. Some banks may require a notarized signature or additional paperwork.
Choose Distribution Method
Decide whether to roll the funds into another retirement account or take a direct distribution. If rolling over, deposit the check into the new account promptly to maintain tax-deferred status. The IRS allows 60 days to complete a rollover; missing this deadline could result in the funds being treated as a taxable distribution.
If cashing the check, be aware that many banks will not allow direct cashing of an “FBO” check. Instead, it may need to be deposited into an eligible account first. Some financial institutions may also require authorization from the issuing institution before processing the transaction.
Potential Tax Factors
Receiving a 401(k) check as part of a distribution can have tax consequences. If not rolled over, the IRS treats it as taxable income, which must be reported on your tax return. The amount is added to your other earnings for the year and could push you into a higher tax bracket.
For traditional 401(k) plans, the entire distribution is subject to ordinary income tax. Roth 401(k) withdrawals may be tax-free if the account has been open for at least five years and you are at least 59½ years old.
If a distribution is not part of a qualified rollover, mandatory federal tax withholding applies. The IRS requires plan administrators to withhold 20% of the taxable portion of a lump sum distribution. If you intend to roll over the full amount, you may need to replace the withheld portion from other sources. Some states also impose their own withholding requirements.
Early withdrawal penalties may apply if you are under 59½ years old. The IRS generally imposes a 10% penalty on early distributions unless an exception applies, such as permanent disability or unreimbursed medical expenses exceeding 7.5% of adjusted gross income.
Additional Documentation
Proper documentation is essential when processing a 401(k) distribution check. Plan administrators and receiving institutions may have specific paperwork requirements to comply with IRS regulations.
The distribution statement, or IRS Form 1099-R, details the amount withdrawn, the type of distribution, and any taxes withheld. This form is issued by the plan administrator and must be retained for tax reporting purposes.
If the check is part of a rollover, some institutions may require a rollover contribution form to accompany the deposit. Without this paperwork, the receiving institution may misclassify the funds, leading to unintended tax consequences. Some brokerage firms also require a letter of acceptance to confirm that the receiving institution is prepared to accept and process the funds correctly.