How do you endorse an FBO check

When it comes to rollovers or transfers between 401k accounts and IRA accounts, one word makes a lot of difference. So, what exactly is the difference between a rollover and a transfer?

A 401k rollover requires that 20 percent of the amount being rolled over be withheld for taxes, even though the account owner still has to deposit 100 percent of the amount within 60 days to avoid taxes and penalties. This means that the account owner has to come up with that 20% on his own, and be sure to deposit it with the 80% proceeds he actually receives.

A 401k transfer requires no withholding and moves the funds tax-free. As a result, a 401k transfer is better than a 401k rollover in most cases.


Likewise, an IRA rollover gives the account owner 60 days to deposit any rolled over funds into a new IRA account. IRS rules limit each taxpayer to only one rollover per year.

An IRA transfer moves the money directly to a new qualified retirement plan account with no delays and with no one per year limits.

FBO Check – For Benefit Of

A trustee-to-trustee transfer occurs when you move funds from one qualified retirement plan custodian to another without ever having control of the money. The easiest way for the IRA owner to do this is electronically with the the financial institutions moving the money from one account to the other by computer. However, it isn’t the only way it is done.

Some IRA banks and brokerages send the account owner a check. This is easier on them because they don’t have to interface their account systems with another bank’s account systems. If they make the check payable to you, however, you have taken control of the funds and started a rollover, not a transfer. That would be a big problem for you.

It all comes down to three little letters on the check: FBO. Ever wonder what does FBO mean on a check?

FBO stands for “for benefit of” and it is a method of writing a check to you, without actually writing a check to you. Your IRA FBO check keeps you from taking control of the funds.

An FBO check is a third-party check. In this case, the check will be made out to the new IRA custodian, usually a bank or brokerage firm, for your benefit. That makes all the difference in the world.

As the FBO on the check, you do not endorse the check. You cannot deposit the check in your bank account. You cannot cash the check. The check is not made out to you. It is made out to Vanguard or Fidelity or whoever is your new IRA company.

The FBO means that you will eventually be the final recipient of the funds. Merrill Lynch can’t just cash your check either. That would violate the FBO portion of the payee. However, you do not get control of the funds until … they are already in your IRA. Viola! Trustee-to-trustee transfer, and not a rollover!

If you are trying to do a transfer and not a rollover and you get a check from your old 401k company or IRA company that is made out directly to you (without the FBO) return the check immediately. Cashing the check or depositing it is the worst thing you can do because that gives you control over the funds and turns your transaction into a rollover.

Your new retirement plan bank or brokerage should help guide you through the process, but it is always smart to know what is going on before you get started.

Filed Under: RetirementTagged With: 401k, fbo, IRA, IRS, Retirement, rollover, transfer