How to Do a Trustee to Trustee Transfer

A trustee-to-trustee transfer is a method for moving funds from one retirement account to another without the account holder taking possession of the money. The financial institution holding the funds, the current trustee, sends the assets directly to the new institution, the successor trustee. This process is distinct from other methods of moving retirement funds and is often used when changing account providers or consolidating accounts. This approach ensures the continued tax-deferred status of the retirement savings.

Understanding the Direct Transfer Method

This process, also known as a direct rollover, is distinct from an indirect, 60-day rollover, where you receive a check and have 60 days to deposit it into a new retirement account. With a direct transfer, the funds are wired electronically or a check is made payable to the new custodian for the benefit of the account owner. The primary benefit of a direct transfer relates to tax withholding.

When you take a distribution from an employer-sponsored plan like a 401(k) to perform an indirect rollover, the plan administrator is required by the IRS to withhold 20% for federal income taxes. For example, on a $50,000 rollover, you would only receive a check for $40,000. To complete the rollover of the full $50,000 and avoid taxes, you would need to make up the $10,000 difference from your own funds.

A trustee-to-trustee transfer avoids this mandatory 20% withholding because the distribution is not paid to you. This also eliminates the risk associated with the 60-day rollover rule. If you fail to deposit the funds into a new retirement account within the 60-day window, the entire amount is considered a taxable distribution and could be subject to a 10% early withdrawal penalty if you are under age 59 ½.

Eligible Retirement Accounts for Transfer

Common account types that can be moved include Traditional IRAs, Roth IRAs, SEP IRAs, and SIMPLE IRAs. Employer-sponsored plans such as 401(k)s, 403(b)s, and governmental 457(b) plans are also frequently moved using this method, often into an IRA after leaving a job.

Special rules apply to SIMPLE IRAs. You must have participated in the SIMPLE IRA plan for at least two years before you can transfer funds to a non-SIMPLE IRA account, like a Traditional IRA or 401(k). This two-year period starts on the day the first contribution was deposited. If you transfer the funds before this period ends, the transfer is considered a taxable distribution and may be subject to a 25% early withdrawal penalty.

To preserve their tax treatment, funds should move between like accounts. Pre-tax funds from a Traditional 401(k) are rolled into a Traditional IRA to maintain their tax-deferred status, and moving assets from a Roth 401(k) to a Roth IRA maintains the account’s tax-free characteristics.

While transfers between similar accounts are most common, other movements are possible but may have tax consequences. Rolling pre-tax funds from a Traditional IRA or 401(k) into a Roth IRA is a Roth conversion. This transaction is reportable to the IRS and requires you to pay income tax on the converted amount in the year of the transfer. The IRS provides a rollover chart that summarizes allowable transactions between different retirement accounts.

Information and Documentation for the Transfer

You will need to gather specific details for both the old and new accounts before starting. The process is initiated with the new financial institution where you want the funds to go. This institution will provide the required “Transfer of Assets” or “Direct Rollover” form, which can be found on its website or requested from customer service.

The transfer form will ask for information including:

• The full name, address, and phone number of the institution currently holding the account
• Your old account number
• Your new account number
• Your personal identification, such as your Social Security number and date of birth
• The amount to be transferred, specifying a full or partial transfer
• How the assets should be moved, either as cash or “in-kind” (transferring investments without selling them)

The Transfer Process Step by Step

After completing the transfer authorization form, you must submit it to your new institution. Most financial institutions allow you to submit the form via secure online upload, mail, or in person at a local branch.

Once the form is received, the new trustee will contact the old institution to request the transfer. The old institution will then verify the information, liquidate assets if necessary (for non-in-kind transfers), and send the funds to the new trustee. The funds are sent via a check made payable to the new institution or through an electronic funds transfer.

The timeline for this process can take from several days to a few weeks, depending on the institutions, transfer method, and asset complexity. You can confirm the transfer is complete by monitoring both accounts. You will see the funds debited from your old account and credited to your new one.