Asked Edward Jones to rollover my IRA to Charles Schwab, and they took out federal income tax, even though I made it perfectly clear it's a rollover, not a disbursal.

Submitted by MaximumRecursion t3_ygphmz in personalfinance

I wanted to move all my money out of Edward Jones into my personal Charles Schwab IRA because EJ sucks. I asked CS the best way to do it, and they said to liquidate all the assets (mostly shitty mutual funds I didn't want in anyway), and have EJ send me the check for my IRA which I then deposit into my Charles Schwab account. CS even said there is no way to do it all over the phone because they need paperwork, and I asked two different people to do it over the phone, so I had no choice but to do it this way.

I have done it this way prior with 401k rollovers, so I know it's not uncommon or difficult, but Edward Jones took out Federal Income tax on the check. It was supposed to be 44,000, and they took out 4,400 in tax. I made it very clear to EJ that it's a rollover. The guy even mistakenly told me taxes would be taken out, and I said, no, it's a rollover. But now the taxes were taken out anyway.

Is there an easy way to fix this? I'm not even sure if the tax penalty for early disbursal was included, because I think this will fuck me in tax season too.

What should I do to begin clearly up? I didn't want it taxed, as it's a rollover, not a disbursal.

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WhileNotLurking t1_iu9qk8d wrote

There are several types of Rollovers. They did one, just not the best one for you.

  • you could have trustee to trustee transfer. This is what you wanted based on your description.

  • they can also issue you a check and then have you redeposit it in the allowed timeframe. To do this they don't know if you will just take the cash and run. So they withhold federal taxes.

You need to make up that 4,400 and deposit it with the rest of the money to Schwab and it will be "tax neutral". You will get your $4,400 back at tax return time. If not that $4,400 will be considered a distribution and you will pay penalty and tax on it.

Edit: from the IRS

How do I complete a rollover?

Direct rollover – If you’re getting a distribution from a retirement plan, you can ask your plan administrator to make the payment directly to another retirement plan or to an IRA. Contact your plan administrator for instructions. The administrator may issue your distribution in the form of a check made payable to your new account. No taxes will be withheld from your transfer amount.

Trustee-to-trustee transfer– If you’re getting a distribution from an IRA, you can ask the financial institution holding your IRA to make the payment directly from your IRA to another IRA or to a retirement plan. No taxes will be withheld from your transfer amount.

60-day rollover – If a distribution from an IRA or a retirement plan is paid directly to you, you can deposit all or a portion of it in an IRA or a retirement plan within 60 days. Taxes will be withheld from a distribution from a retirement plan (see below), so you’ll have to use other funds to roll over the full amount of the distribution.

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DeluxeXL t1_iu9qvdh wrote

You have been using the wrong terms. The term for moving directly from one IRA trustee to the next is called a transfer, not a rollover. The term "rollover" is mainly used when moving to or from a workplace plan and the following: An indirect rollover is when money is sent to you from the first IRA trustee, and you send the money plus any taxes withheld to the next IRA trustee. This is the term you've been using. The EJ rep saw the first button with the word "rollover" in it and clicked it.

You are allowed to complete one indirect rollover from a traditional IRA to a traditional IRA in a rolling 12 month period. All indirect rollovers must be completed within 60 days. You'll need to cover the taxes withheld from your own pocket until you can get them back when you file your tax returns.

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MaximumRecursion OP t1_iu9rk37 wrote

Replying to DeluxeXL (#318,845)

>An indirect rollover is when money is sent to you from the first IRA trustee, and you send the money plus any taxes withheld to the next IRA trustee. This is the term you've been using.

Are you saying I just include the amount withheld in taxes from my own momey when depositing the check I got?

And, presumably, I get that money back when completing my taxes at the end lf the year?

I just don't want to lose $4400 for just moving my retirement from a predatory company like Edward Jones to my own account.

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DeluxeXL t1_iu9rpc3 wrote

Replying to MaximumRecursion (#318,998)

> Are you saying I just include the amount withheld in taxes from my own momey when depositing the check I got?

Yes. Cover the taxes withheld out of your pocket for now. But don't just deposit the checks. You must tell Schwab that these are indirect rollovers. Otherwise it can't distinguish between a rollover and a contribution.

> And, presumably, I get that money back when completing my taxes at the end lf the year?

Yes. The 1099-R will show the taxes withheld. Enter into your tax return.

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SconiGrower t1_iu9rrgs wrote

They did it as an indirect rollover because they sent the check to you personally as opposed to Charles Schwab. If you deposit the check into your CS IRA within 60 days (DO THIS ASAP) and make up the $4400 out of your personal funds then there will be no taxation. If you don't have the cash to do that and only deposit the check, then only the $4400 will be taxed and penalized. You will get a tax document from EJ saying they disbursed money to you, but CS will also report they received money from you and the IRS will know the two cancel each other out.

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myogawa t1_iubdurk wrote

A note for everyone: always ask the destination custodian to take care of doing it via a trustee-to-trustee transfer, to avoid this kind of problem.

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