For those who have traditional IRAs, it's important to understand required minimum distributions (RMDs). According to IRS Publication 590:
If you are the owner of a traditional IRA, you must generally start receiving distributions from your IRA by April 1 of the year following the year in which you reach age 70½. April 1 of the year following the year in which you reach age 70½ is referred to as the required beginning date.
RMDs can create potential issues for those with IRA CDs which have early withdrawal penalties. However, it's common for banks and credit unions to allow RMDs without early withdrawal penalties. For example, Alliant Credit Union has the following exceptions to the early withdrawal penalty:
Where the account is an individual retirement account (IRA) and any portion is paid within 7 days after the establishment of the IRA; or the account owner becomes disabled; or where the account is an IRA and the owner attains age 70½
This is also the case at Ally Bank as I described in my Ally Bank IRA review:
This penalty does not apply in the case of death, disability or legal incapacity of any owner, or, in the case of a required minimum distribution (RMD), you may withdraw the amount of the RMD without incurring an early withdrawal penalty.
Bank of America IRA CDs and RMD
Some banks don't make it as easy as Alliant or Ally to handle RMDs. As you might expect, Bank of America is one of them. A reader left the following comment in my post on Bank of America's early withdrawal penalty changes:
Bank of America is charging seniors a fee and penalty on there mandatory IRA withdrawal if you walk into a branch to do your business.. When your over 70 1/2 you must make yearly mandatory withdrawals from an IRA. If its in a 5 year IRA CD and you take the withdrawal they hit you with an early withdrawal fee and penalty. They get back most of the interest you made. The IRS requires you remove the funds.
I was not able to find the IRA CD policy details at Bank of America's website. So I called Bank of America at 888-827-1812 to better understand its IRA policies. According to two customer service reps, IRA CD owners who are at least 70½ can avoid an early withdrawal penalty, but they have to schedule the withdrawal in advance. I was told there's a form that can be filled out at a branch. This can also be done by phone. It must be done at least 3 business days before the withdrawal (one CSR said 5 days). The withdrawals can be set to repeat monthly, quarterly or yearly.
IRA CD Early Withdrawal Penalty for Owners 59½ to 70½
According to the Bank of America CSRs, there are no early withdrawal penalty exceptions for IRA CD owners between 59½ and 70½. Some banks and credit unions waive the EWP for IRA CD owners in this age range. One example is Pentagon Federal Credit Union (PenFed). According to PenFed's IRA form, the EWP will not be applied "If the owner has reached age 59½ and takes a partial withdrawal." I provided more details on this in my 2009 PenFed IRA CD review.