What Is a FBO IRA?

Image Credit: designer491/iStock/GettyImages

In the finance world, FBO means "for the benefit of" and is used in a number of contexts. The purpose of a custodian FBO check is to allow one company to make financial transactions for the benefit of another entity. For example, it would allow a bank or other financial institution to deposit a check into an individual's account without the account owner needing to become involved in the transaction. An IRA can use FBO checks.


Examples of Custodian FBO in Use

For example, a check made out to "This Bank FBO Client Name" means that This Bank is allowed to transfer the check into the client's account without the client needing to be the middleman.

Video of the Day

FBO checks are usually used to move money around in retirement accounts; the Internal Revenue Service (IRS) deems FBO checks as non-taxable transfers. These kinds of checks are often needed when dealing with rollover money or if you are the beneficiary of someone else's retirement account.


Types of IRA Accounts

An IRA is a type of retirement account that allows you to save money for your later years in an account that gives you tax advantages (rather than, say, a standard savings account). Since an IRA is a targeted retirement account, withdrawals before the age of ​59.5​ can be taxed and charged an additional ​10 percent​ early withdrawal fee; this usually depends on the circumstances under which you're withdrawing early.

There are three different sorts of IRAs, explains the team from Fidelity. With a traditional IRA, you can deduct any contributions you make from your taxable income, reducing your taxes owed for that year. When you withdraw the money in retirement, you will have to pay taxes on withdrawals.


A Roth IRA lets you deposit post-tax money into the account, and allows you to withdraw the money early without taxes or penalties (within certain restrictions only). You also don't pay taxes on the money when you retire and begin to withdraw. Finally, a rollover IRA account comes from a previously existing account. This could be your workplace 401(k), if you want to move it into another account. Rollovers are also used for those who find themselves beneficiaries of another person's account.

Consider also:How to File Taxes on an FBO Trust


IRA Rollovers Using FBO Checks

FBO checks are used when an account owner wants to roll retirement money over to a new account. This can be initiated by the account owner, but can also be initiated when a retirement account is passed on to the beneficiary if the original owner dies.

Rollovers help account owners avoid a mandatory early distribution of their funds and help make sense of tax rules. There are three types of rollovers that can occur based on the situation and how the check may be written.


A direct rollover takes the money directly from one retirement plan into another. No taxes are withheld in this kind of transfer, and it usually corresponds with the first account closing, but not always. Using an FBO check, the account owner can instruct their administrator to transfer into another retirement plan for the benefit of another person, i.e. into their account.

Additional Rollover Types

A trustee-to-trustee transfer works with distributions coming from an existing IRA. The individual receiving payments can ask their administrator to transfer some or all of the funds into another IRA or retirement plan. Taxes are not withheld on this kind of rollover. Trustee checks work similarly to FBO checks.


A 60-day rollover occurs when money from an existing IRA or other retirement account is transferred to a different person. In this case, the recipient has ​60 days​ to deposit some or all of the funds into an IRA or retirement plan. The institution in charge of receiving the funds can withhold taxes in this kind of rollover.

The difference between this kind of rollover and a ​60-day​ rollover can be as trivial as the way the FBO check was written. This is why it's important to make sure the instructions given to your administrator will allow the transfer to function in the way you desire.