Do you endorse a check made to FBO?
In short, no. Usually FBO checks (For Benefit Of) are made out
to an institutional administrator in a company-to-company transfer,
rollover, or 1035 exchange, where the funds are NOT to be handled
by the individual for tax purposes. Institution-to-institution
transfers are not endorsed by the FBO person because checks are
negotiable instruments between the issuing company and the
receiving company. Often in these type of transaction a physical
check is not issued, but the funds are sent by wire or electric
fund transfer (EFT). There are really two reasons for a custodian
to issue a paper FBO check: (1) the individual is the sent the
check so they know that the correct amount of their funds have been
taken out of the previous account. They can then mail the check to
the new company and there are no income tax consequences because
the check was not made out to them. (2) The previous custodian
earns interest on the funds being transferred from the date of
issuing the check until the new custodian cashes the check. This
interest on uncashed checks is called float. Large institutions
have very large sums of money in outstanding checks earning
interest, and even at low interest rates, this 'float' can be a
sizable amount and the source of considerable income for the
institution.
Related Q&A：
Do you sign a FBO check？Oh, well, it really depends on the circumstances, you know? If it's something that's necessary and within the proper protocols and everything is in order, then yeah, I might sign an FBO check. But if there are any uncertainties or if something seems off about it, then I'd have to think twice and maybe get some more clarification before putting my signature on it. You know how it is, gotta be careful with these things!
