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Is a distribution triggered by writing a check from one IRA account to another IRA account?

I have checks for a traditional IRA account at bank-A. I opened another traditional IRA account at bank-B by sending them a check from bank-A, made out to bank-B for my benefit. The way I understand this, this would be a transfer and not a roll-over and bank-A should not file a 1099-R since this is not a distribution. Further, it looks to me like I can do this same type of transaction as many times as I want since it is a transfer and not a rollover which has a one in 12-month limit.

Does this seem correct? I already did this, but I'm concerned that it could be problematic. thx for any help/suggestions!

update: I contacted both banks. bank-A coded it as a "distribution" and bank-B coded it as a "transfer". bank-A did not withhold any taxes. I think it will end up being an indirect rollover tax-wise.

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  • Was the check drafted by the plan administrator at your request, or one you wrote from a "check book" as you might an ordinary checking account? I'm not from the US, so the concept of "I have checks for [a retirement account]" seems slightly strange to me. However, reading this Investopedia page (from "To engineer a direct rollover...") I have a feeling it might count as a distribution if it was a blank check you wrote yourself.
    – TripeHound
    Commented Jul 4, 2019 at 6:50
  • How much money did you "roll over" or transfer from Bank A to Bank B? If no more than your current IRA contribution limit, Bank B might be thinking that you are opening a new IRA account with a contribution for 2019. If more, that is another can of worms.
    – Dilip Sarwate
    Commented Jul 4, 2019 at 11:48
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    @TripeHound: I am from the US, and the concept of checks for a retirement account seems strange to me too. If I want money from the retirement account, I presume I'd do the same as I do with my other investment accounts with the same companies: go to the web site, tell them to sell $X and transfer it to my checking account. (On which the last physical check was written in August 2017 :-))
    – jamesqf
    Commented Jul 4, 2019 at 17:31

2 Answers 2

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No sir. The "unlimited" rule only applies to electronic "IRA-IRA transfer" transactions which you do by telling your bank the details of the other IRA account and having them directly transfer the money there electronically. The transaction is coded in the system as a transfer in all respects, and is entirely "hands-off" on your part.

If they gave you a "checkbook" that lets you "write checks out of your IRA", that's like giving you a stick of dynamite and telling you it's a candle. What is wrong with their brain?

Yes, the fact that it was written out as a check means it will be treated as a distribution (cash-out). You will need to bend over backwards to prove that you did in fact roll it over into another IRA account within 60 days. And you can only do that once per year. Consult with a tax advisor on how exactly to assure both banks mark it as a rollover, and justify that to IRS. If you don't do this right, then yeah, it's a distribution.

If you did two of them inside 365 days, you have lost them all except the largest. Try to salvage that one. Stop using this transfer technique.

Also, if you recently bought your first house, you may be able to characterize up to $10,000 of this as a house-purchase expense, and this will exempt you from the penalty.

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  • +1 for that second paragraph. Many years ago, I had an IRA invested in a money market account but Vanguard never issued me a checkbook for it the way it did for my nonIRA money market account.
    – Dilip Sarwate
    Commented Jul 4, 2019 at 14:56
  • if the check is deposited into the new IRA account, it is not an issue, as you just file the taxes accordingly and it evens out. it is only an issue if you really had the cash in your hands in between.
    – Aganju
    Commented Jul 4, 2019 at 17:09
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I believe any withdrawal of money from an IRA or 401k would be called a distribution and would trigger a 1099-R. A distribution means that money was removed from that account, and doesn't indicate what you did with the money. Even a direct rollover of 401k to a rollover IRA (where it is done within the brokerage and you never touch the money) would be a distribution that triggers a 1099-R.

When you file your taxes, you need to indicate what you did with the distribution so that you are taxed correctly.

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