/account-transfers

Account Transfers — Worked Examples

Example 1: Managing a full ACAT transfer for a high-net-worth household moving from a competitor

Scenario: A high-net-worth household with $8M across five accounts is moving from a competitor firm to your firm. The accounts are: (1) a joint taxable account with $3M in individual equities and ETFs, (2) the husband's Traditional IRA with $1.5M in mutual funds and bonds, (3) the wife's Roth IRA with $800K in equities and ETFs, (4) a revocable family trust with $2.2M in a diversified portfolio including equities, fixed income, and a limited partnership interest valued at $200K, and (5) a custodial UTMA account for their minor child with $500K in mutual funds. The advisor wants to complete the transfer as efficiently as possible and invest the assets into the firm's model portfolios.

Design Considerations:

• Five separate ACAT transfers must be initiated — each account is a distinct ACATS transfer request
• The limited partnership in the trust account is likely ACAT-ineligible and will require separate handling
• The mutual funds in the IRA and UTMA accounts must be verified for availability on the receiving firm's platform — proprietary funds of the competitor may not be transferable in-kind
• The joint taxable account and trust account may have significant unrealized gains, making in-kind transfer critical to avoid unnecessary taxable events
• Cost basis must transfer accurately for all taxable accounts (joint, trust, UTMA); retirement accounts (IRA, Roth IRA) do not have cost basis reporting requirements during the transfer but should be tracked internally
• The UTMA account requires that the custodian (parent) authorize the transfer

Analysis: Begin by opening all five accounts at the receiving firm with proper registrations matching the delivering firm exactly (account title mismatches are the most common cause of ACAT rejections). Obtain signed TIFs for all five accounts. For the trust account, ensure the trust certification and EIN documentation are on file. For the UTMA, verify the custodian designation matches.

Submit all five ACAT requests simultaneously. For the trust account, submit a partial ACAT excluding the limited partnership position. Contact the limited partnership's general partner to initiate a separate assignment/transfer process for the LP interest — this will require: a transfer of ownership form from the GP, the receiving firm's confirmation that it can hold the LP interest on its books, and potentially a 30-60 day processing period for GP approval.

For the mutual funds, pre-verify each fund's availability on the receiving firm's platform. If any funds are proprietary to the delivering firm, discuss with the client: (a) liquidate at the delivering firm before the ACAT (taxable event in the IRA/UTMA is not a concern since these are tax-advantaged accounts, but taxable for the joint/trust accounts), or (b) transfer via ACAT and the positions will arrive as "ineligible" and need to be liquidated at the receiving firm, or (c) leave the proprietary fund positions behind and transfer only eligible assets.

Monitor all five transfers daily through ACATS status updates. The expected timeline is: validation within 3 business days, asset delivery within 6 business days total. After the primary transfer settles, reconcile all positions against the delivering firm's final statement. Verify cost basis information was received for the joint, trust, and UTMA accounts. Process any residual credits (fractional shares, pending dividends) as they arrive over the following 2-4 weeks.

Once all assets are received and reconciled, assign each account to the appropriate model portfolio. For the joint and trust accounts with existing equity positions, the advisor should evaluate which positions to retain (to avoid realizing gains) and which to sell for model alignment, factoring in tax-loss harvesting opportunities. Provide the client with a transfer completion summary showing all positions received, cost basis, and any residual items pending.

Example 2: Processing retirement account rollovers from a 401(k) to an IRA with Roth conversion

Scenario: A 55-year-old client has recently left her employer and has a 401(k) with $750K, consisting of $600K in pre-tax contributions and earnings and $150K in after-tax (non-Roth) contributions and earnings. The client wants to roll the funds into an IRA at your firm and convert a portion to a Roth IRA. The client's current-year taxable income is $180K (married filing jointly), placing her in the 24% federal bracket. The client wants to manage the tax impact of the Roth conversion.

Design Considerations:

• The 401(k) contains both pre-tax and after-tax funds, which enables a split rollover under IRS Notice 2014-54
• Under Notice 2014-54, the client can direct the pre-tax portion ($600K) to a Traditional IRA and the after-tax contributions (basis) to a Roth IRA, with the earnings on after-tax contributions going to the Traditional IRA
• The after-tax contribution basis of $150K includes both the original contributions and earnings on those contributions — the plan administrator must provide a breakdown. Assume $120K is after-tax basis and $30K is earnings on those contributions
• The $120K after-tax basis can be converted to a Roth IRA with zero tax because it has already been taxed. The $30K in earnings would be taxable if converted to Roth
• A direct rollover avoids the 20% mandatory withholding that applies to indirect rollovers from employer plans
• The client may want to convert additional pre-tax funds to Roth, but must weigh the tax cost

Analysis: Step 1: Open a Traditional IRA and a Roth IRA at the receiving firm. Step 2: Request a split direct rollover from the 401(k) plan administrator. The rollover instruction directs: pre-tax contributions and all earnings ($600K pre-tax + $30K earnings on after-tax = $630K) to the Traditional IRA, and after-tax contribution basis ($120K) to the Roth IRA. Under Notice 2014-54, this allocation is permitted because the after-tax basis is directed to the Roth IRA and the pre-tax/earnings portion is directed to the Traditional IRA.

Tax impact of the split rollover: the $120K direct rollover to the Roth IRA from after-tax contributions has zero tax because the basis has already been taxed. The $630K direct rollover to the Traditional IRA is not currently taxable.

Step 3: Evaluate additional Roth conversion. The client is in the 24% bracket at $180K income. The top of the 24% bracket for married filing jointly is $383,900 for the 2024 tax year (the figures used in this example — bracket thresholds are inflation-indexed annually, so verify current-year brackets before executing). The client has approximately $203K of room in the 24% bracket ($383,900 minus $180K). Converting $203K from the Traditional IRA to the Roth IRA would keep the client in the 24% bracket and cost approximately $48,720 in federal tax ($203K multiplied by 24%). Alternatively, the client could convert less to stay well within the bracket or spread conversions over multiple years.

Step 4: Process the Roth conversion. After the direct rollover to the Traditional IRA settles (allow 1-2 weeks for the 401(k) distribution and IRA deposit), initiate a Roth conversion for the agreed-upon amount. The conversion is processed as a distribution from the Traditional IRA and a contribution to the Roth IRA. The firm issues a 1099-R for the conversion in the year it occurs.

Step 5: Tax reporting. The 401(k) plan administrator issues Form 1099-R for the direct rollover distribution (code G). The receiving firm issues Form 5498 for the rollover contribution to the Traditional IRA and the Roth IRA. If a subsequent Roth conversion is done, the receiving firm issues an additional 1099-R for the conversion distribution and an additional 5498 for the Roth conversion contribution.

Step 6: Document the multi-year Roth conversion strategy. If the client plans to convert additional amounts in future years, document the plan: target conversion amount per year, bracket analysis, and the expected timeline to convert the desired total. This becomes part of the client's financial plan and should be reviewed annually as income and tax brackets change.

Example 3: Handling estate account transfers to multiple beneficiaries with different account types

Scenario: A client passed away holding three accounts at your firm: (1) an individual taxable account with $2M in equities and bonds, (2) a Traditional IRA with $500K, and (3) a joint taxable account (JTWROS) with his spouse holding $1M in diversified funds. The will names the spouse as the sole beneficiary of the estate (for the individual taxable account). The IRA beneficiary designation names the spouse (60%) and the two adult children (20% each). The date of death is January 15, and the firm was notified on January 22.

Design Considerations:

• The joint JTWROS account passes automatically to the surviving spouse by operation of law — this is not a probate asset and does not go through the estate
• The individual taxable account is a probate asset that passes under the will to the spouse through the estate
• The IRA passes by beneficiary designation, not by will — the 60/20/20 split controls
• All assets in the individual taxable and joint accounts receive a cost basis step-up to fair market value as of the date of death (January 15)
• In a community property state, the spouse's half of the joint account also receives a step-up; in a common law state, only the decedent's half steps up, but for JTWROS the entire account passes to the surviving spouse regardless
• The spouse can roll the 60% IRA share into her own IRA; the adult children must take their shares as inherited IRAs subject to the SECURE Act 10-year rule
• The inherited IRAs must be established as separate accounts by December 31 of the year following the year of death to allow each beneficiary to use their own distribution timeline

Analysis:

Joint account (JTWROS) — immediate processing: Upon receipt of the certified death certificate, remove the decedent's name from the joint account registration. The account becomes solely the surviving spouse's individual account. No letters testamentary are needed — a death certificate is sufficient. Process the cost basis step-up for the decedent's portion of the holdings (or the full step-up if the couple was in a community property state). This can typically be completed within 1-2 weeks of receiving the death certificate.

Individual taxable account — estate processing: Freeze the account upon notification of death. Request the following documentation: certified death certificate, letters testamentary (the spouse must be appointed as executor by the probate court), estate EIN (obtained by the executor from the IRS via Form SS-4), and the firm's beneficiary claim form. Once letters testamentary are received, re-title the account as an estate account ("Estate of [Decedent Name], [Spouse Name], Executor"). Process the cost basis step-up to the January 15 date-of-death values for all positions. The executor may then either: (a) distribute the assets in-kind to the spouse's individual account (preserving the stepped-up basis), (b) liquidate the positions and distribute cash, or (c) maintain the estate account during the probate process and distribute upon estate settlement. Given that the spouse is the sole beneficiary, in-kind distribution to the spouse's account is typically the most tax-efficient approach, preserving the stepped-up basis.

Traditional IRA — beneficiary distribution: The IRA beneficiary designation controls. Three separate inherited IRA accounts must be established:

1. Spouse's inherited IRA (60% = $300K): The spouse has three options: (a) roll the $300K into her own existing Traditional IRA — this is the most common choice as it allows continued tax-deferred growth, new beneficiary designations, and delays RMDs until the spouse's own required beginning date; (b) transfer to an inherited IRA in the spouse's name — this preserves the ability to take distributions without early withdrawal penalty regardless of age, which is beneficial if the spouse is under 59 1/2 and needs access to funds; or (c) take a lump-sum distribution (fully taxable and rarely advisable). For a spouse who does not need immediate access and is over 59 1/2, spousal rollover is typically preferred.

2. Child 1 inherited IRA (20% = $100K): Establish an inherited IRA titled "Decedent Name, Deceased, FBO Child 1 Name, Beneficiary." Under the SECURE Act, Child 1 must distribute the entire inherited IRA by December 31 of the 10th year following the year of death (by December 31 of Year 11 counting from the year after death). There are no annual RMDs required during the 10-year period (assuming the decedent died before the required beginning date); however, the entire balance must be distributed by the end of the 10th year. If the decedent had already reached the required beginning date, annual RMDs are required during the 10-year period based on the beneficiary's life expectancy.

3. Child 2 inherited IRA (20% = $100K): Same structure and rules as Child 1.

Timeline and coordination: Establish the three inherited IRA accounts as quickly as documentation allows, and no later than December 31 of the year following the year of death to preserve separate account treatment. Process the IRA distributions per the beneficiary designation percentages. Provide each beneficiary with documentation of their inherited IRA, the distribution rules that apply, and the deadline for full distribution. Coordinate with the estate attorney on the probate timeline for the individual taxable account.

Cost basis documentation: Prepare a date-of-death valuation report for all three accounts showing: each position, the number of shares or par value, the closing price on January 15 (or the average of the high and low for that date), and the total stepped-up basis. This report becomes part of the estate records and is provided to the executor, the tax preparer, and each beneficiary for their records. The stepped-up basis applies to the individual taxable account and the joint account but does not apply to the IRA (IRA distributions are taxed as ordinary income regardless of basis step-up).