Experience and Benefits
Custodian-to-Custodian Transfers ("direct transfers")
A custodian-to-custodian transfer differs from a rollover in that you are never in direct receipt of the funds. Although such transfers are not defined by statute, they are accepted by the Service. Such transfers are not subject to 20% income tax withholding by the plan sponsor. See Rev. Rul. 67‑213, 1967‑2 C.B. 149.
(a) The plan documents of both transferee and transferor plans must permit direct transfers.
(b) Custodian‑to‑custodian transfer of a non‑deductible employee contributions (not eligible for rollovers) is permitted.
(c) With a custodian‑to‑custodian transfer, IRS allows the tracking of prior years of participation for purposes of the five‑year participation requirement for ten‑year averaging upon a Lump Sum distribution from the second plan. Not permitted if rolled over.
(d) Custodian‑to‑custodian transfers must be reported by both plans on Form 5310, not less than 30 days prior to the proposed transfer.