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Early Withdrawals from IRA CDs (Penfed vs. Navy FCU)


Some banks and credit unions provide a nice feature to IRA certificates in that they allow penalty free withdrawals of an IRA CD for those over 59 1/2 years old. It's important to note that this feature is not provided by all banks and credit unions.

Pentagon Federal Credit Union is one place that does have this early withdrawal feature for IRAs. For those over 59 1/2, you can close a CD without penalties. Once closed, you're free to open a new CD at a higher rate. Several readers have noted that this CD upgrade can be done with a phone call. It's important to note this applies only to the IRA certificates and only for those over 59 1/2. Here's a quote of the official details on page 15 of Penfed's IRA documentation:
The penalties described above will not be applied if the redemption is made: (iii) If the owner has reached age 59 1/2 or is permanently disabled, as defined in the Internal Revenue Code Section 72(m).

So if you have a Penfed IRA and you're over 59 1/2, there's no reason not to choose a new 6.25% APY 7-year IRA. That way you lock in the 6.25% APY for 7 years. If rates do rise, you can always upgrade. Also note, several readers have mentioned being told by Penfed CSRs that this 6.25% APY will likely fall to 6% on February 1st. So your chance of locking in on this high yield may be nearing an end. For more info on Penfed, membership and these CDs, please refer to my previous post.

At Navy Federal Credit Union you don't get this option. You're hit with an early withdrawal penalty from an IRA certificate even if you're over 59 1/2. The NFCU IRA documentation on page 11 only lists 4 exceptions in which a penalty will not be applied:
1. Withdrawals of dividend payments only.
2. Withdrawals made from an IRA Certificate due to the death of the IRA
3. Withdrawals made as a result of the voluntary or involuntary liquidation of the Credit Union.
4. Withdrawals of required minimum distributions.

Note, NFCU's 7-year CD has a maximum early withdrawal penalty of 1-year of interest. The 5-year CD only has a 6-month penalty. For more info on NFCU and their latest CD rate deals, please refer to my NFCU's 6% 15-month CD post and my NFCU's 6.25% 84-month CD post.
SVG (anonymous)   |     |   Comment #1
Banking Guy,

>>For those over 59 1/2, you can close a CD without penalties.

Actually evenif you are not 59 1/2, Penfed at times, permits you to close IRA Certificates without any penalty !

You need to talk to the CSR and find out if he/she will let you do it. I guess the CSRs have some leeway in the matters of charges/penalties and at times they use it.

Anonymous   |     |   Comment #2
That's exactly what I did. This is a no brainer.
Anonymous   |     |   Comment #3
I would be curious if you have any information pertaining to the following: Last Sunday in Money & Careers Section from Newsday LI NY someone wrote in a question to the column "Your Money" regarding tapping an inherited IRA. Lynn Brenner had some very interesting information. She obviously knows the new rules that allow a nonspouse beneficiary of an IRA to take withdrawals over his/her lifetime. She mentioned the possibility that some financial institutions might not allow the moving of an inherited IRA from their particular insitution to another institution in what is known as a trustee to trustee transfer. Do you know or can you find the language in Penfed's IRAs and Navy FCU's IRAs that would indicate if they would permit such a transfer of an inherited IRA by a nonspouse beneficiary to another institution? If a nonspouse beneficiary cannot move the money from one trustee to another trustee easily, they will not be able to get the best rates or deal over the perhaps many year years that he/she would be taking withdrawals. I like both Penfed and Navy FCU but have not been able to locate the information myself. For that matter, I can't figure out what Fidelity or Vanguard's rules are either but I can do some more research or speak with a customer representative. However, Penfed's CD rates like 6.25 seem to be a good deal on the surface but one needs to know all the facts.

Anonymous   |     |   Comment #4
Banking Guy your point is well taken. It is a good observation you have made. However, readers should remain aware ANY financial institution can change its rules and regulations. In particular, should more folks seek to take advantage of this somewhat obscure provision, to the detriment of the institution, then rule change might be the way they respond in order to protect themselves.
Anonymous   |     |   Comment #5
FYI: Update on Penfed's early withdrawal rules for IRA CDs....as of 9/1/2007 the penalty-free withdrawal (after age 59 1/2) provision was changed...probably for new accounts created after that date.
Check with CSR for new rules.