Episode summary
How Advisors Can Help Clients Avoid Costly IRA Rollover Mistakes
Summary
The episode focuses on how small IRA processing errors can create large tax bills, and Denise Appleby argues that advisors should treat rollover mechanics as a core client-service issue, not a paperwork detail. Her central advice is to default to trustee-to-trustee transfers instead of client-handled rollovers, because repeated rollovers can trigger taxable distributions and, in some cases, retroactive tax exposure on large balances.
Appleby says the biggest traps are the one-per-year rollover limit, the 60-day deadline, and inherited-account rules for non-spouse beneficiaries, who generally cannot use a 60-day rollover. She also warns that funds sent to the wrong IRA type can create unintended Roth conversions, and notes that recharacterization is no longer available for those mistakes. In her telling, clients often blame custodians or advisers after the fact, but the IRS still holds the taxpayer responsible.
When errors happen, Appleby says advisers should audit the transaction immediately, determine whether correction is possible, and escalate to the IRS or seek a private letter ruling only when necessary. Her practical recommendation is to use checklists before every transaction so advisers can catch red flags early and stop a mistake before it becomes a taxable event.
Key takeaways
- Appleby says advisers should default to trustee-to-trustee transfers, because repeated IRA rollovers can turn a nonissue into taxable income.
- She warns that non-spouse inherited IRA beneficiaries cannot use the same 60-day rollover flexibility as regular IRA owners.
- Appleby says an unintended Roth conversion can happen if a traditional IRA rollover is deposited into a Roth IRA, and recharacterization is no longer available.
- She says advisers should audit every error quickly and consider IRS relief only when the facts and circumstances support a waiver.
- Appleby recommends a transaction checklist as the simplest way to reduce IRA mistakes across an adviser’s book.
Notable quotes
“Moving an IRA using the rollover method more than once”
“Unless your client really needs to use the funds on a temporary basis, never ever use the rollover method”
“So, now they have a Roth conversion that they didn't intend to do”
“Every transaction where there's an error, you audit it. Sometimes you can fix it. Sometimes it means going to the IRS”
“don't be afraid when you're sitting with a client to pull out your checklist and say, "Oh, you want to do a rollover? Here are the questions that I need to ask you”
How the episode opens
Small retirement account mistakes can create very expensive client problems. To learn more, I'm joined by Denise Acton. Denise, welcome.
Thanks for having me, Shannon. Absolutely. Looking forward to this conversation because I want to start with your You have a workshop here at the Horizons event called Mistakes That Cost.
That's a kind of a scary title a little bit, but what's the most common small oversight that turns into a big problem for clients? Moving an IRA using the rollover method more than once. Here's why that's so important.
You think you have an IRA valued at $10 million. You go to see an advisor that attends a conference like this, so they know, and they audit your IRA, and they say to you, "Well, despite what the statement says, you really don't have an IRA, and you owe taxes on $10 million 5 years ago because you used the wrong method once too often. Uh so, quell some fears here then.
How should advisors be having these conversations with their clients to ensure that that doesn't happen? The client comes to you and they tell you, "I like you better than the advisor that I have right now. I want to move my IRA to you.
You make sure they use the trustee to trustee transfer method. And in order to do that, you set up the IRA, and you request the transfer cuz here's what's going to happen. If you tell them, "Go to that old financial institution and tell them you want to transfer your IRA," I guarantee you they're going to give them a distribution, and the only thing you can do with a distribution is roll it over.
Now, if that's the only time it's done during a 12-month period, that's fine.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ira rollover mistakes
- 60-day deadline
- inherited ira missteps
- unintended roth conversions
- advisor checklists
Watch the episode
Watch “How Advisors Can Help Clients Avoid Costly IRA Rollover Mistakes” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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