Can You Cash Your Rollover Check Even if FBO Is Written on It?

You can cash your rollover check.
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Under federal tax laws, retirement accounts are tax-qualified, which means that the money inside these accounts grows tax-deferred. Rollovers occur when you move your money between different tax-qualified accounts. Generally, retirement account custodians make rollover checks payable to you, in which case you can cash the check if you decide not to re-invest it in a different retirement account.


If your custodian makes the check payable to another entity but also writes the letters "FBO," followed by your name, on the payee line, then you cannot cash it. Here's what you need to know to deal with an FBO check.

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Trustee-to-Trustee Rollover

The Internal Revenue Service recognizes two different types of rollovers. Generally, investors only use the term "rollover" to refer to the movement of retirement money in instances in which the custodian physically provides you with the funds and you receive cash or a check made payable to you.


Account custodians can also opt to send the money directly to the new account custodian by way of a trustee-to-trustee transfer. When this occurs, the original custodian makes the check payable to the next custodian but writes "for the benefit of" or "FBO" followed by your name on the disbursement check. The new custodian creates an account for your benefit; but, as the payee, the new custodian, rather than you, must negotiate the FBO check.

1099 for Rollover Checks

When you receive a retirement account disbursement, the custodian must issue a 1099 form, and you must report the distribution when you file your taxes. Additionally, for 401(k) rollovers, the custodian must withhold ​20 percent​ of the disbursement to cover taxes. ​Ten percent​ of funds are withheld from Individual Retirement Arrangement disbursements.


You must replenish the funds with your own money and reinvest the money in a tax-qualified account within 60 days of the disbursement. If you arrange a trustee-to-trustee transfer, you do not have the ability to access the funds, so the custodian neither withholds any more nor issues a 1099.

Reissue of an FBO Check

If you receive a trustee-to-trustee transfer check but you need to access the funds, you can either request a new check or deposit the money into the new retirement account. If you want a new check issued, you should write "Void" across the face of the distribution check and return the check to the custodian.


Ask the custodian to issue a new check made payable to you rather than your new account custodian. Alternatively, give the FBO check to the new custodian and make an account withdrawal once the funds have been deposited into the account.

Taxes on a Rollover Check

When you cash a retirement check, you normally have to pay state and federal income tax on the entire amount of the check proceeds. Additionally, you'd have to pay a ​10 percent​ tax penalty if you access funds from a tax-qualified account before you reach the age of 59 1/2. If you need the money to buy a first-time home, to cover medical costs or you need funds in certain other situations, then the Internal Revenue Service waives the penalty.


There was also a provision for the 2020 tax year to waive the ​10 percent​ penalty on ​up to $100,000​ taken out of retirement plans for coronavirus-related reasons. This let taxpayers spread the taxes out on the disbursement over ​three tax years​ too.

If you fail to re-deposit a rollover check into your retirement account with ​60 days​ of the disbursement, then you must pay ordinary income tax and, if applicable, the tax penalty.


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