The FDIC has mailed out checks to the customers of a failed bank in our area. The FDIC website for the failed bank states that IRA funds are being treated as a distribution and that there will be no early withdrawal penalty. It states that the customer has 60 days to reinvest the IRA into another retirement vehicle to qualify as a rollover for income tax purposes. Does anyone know of any alternatives since this is not the customer’s fault? Specifically, any transfer alternatives.

No, and they should be consulting their tax accountant for advice, not you.

If your customers follow the FDIC's instructions there is no harm and no foul...

this is what will offer them tax liability protection. If they want to know what type of investment vehicles are considered eligible for rollover, they need to seek tax profession advice, as noted above.

As everyone has noted. This is no different than any other IRA rollover. You have 60 days to preserve the tax differed status of the IRA money. They dump it into a rollover IRA somewhere, or they pay the Federal tax as income on the monies and the 10% penalty if they are not 59 1/2..

Thank you all!