Minimum Required Distribution

Cdbob | Dec 21, 2022 | 49 posts since 2017

Can I take a large MRD, all from one CD, and close the CD without incurring an early withdrawl penalty? There is still 3 years left on the CD and it's my lowest yielding CD and I would like to close it out. I would do this after the first of the year. The amount is about what is required for all my combined MRD requirements for next year. Does a credit union legally need to honor a large withdrawl without charging an early withdrawl penalty that closes the account, or can they limit the withdrawl to a percentage of the CD?

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Answers

happyharold4 | Dec 22, 2022 | 388 posts since 2022

RMD---Required Minimum Distribution. Is it in an IRA account. Is your age over 72. Depends on the bank. If you have several Ira's requiring RMD's, the Fed says you can bunch the amount and take all of them from any account you choose. I have found Synchrony bank to be the most liberal on this. Ally, if your in an Ira cd will only allow removal of funds to cover your RMD with them. At Synchrony I have been allowed to take out way over the RMD amount. But be careful as Synchrony uses ChexSystems. You are asking generalizations and they don't apply to all FI's.

Cdbob | Dec 22, 2022 | 49 posts since 2017

Thanks happyharold4, yes I am over 72 and yes it is a traditional IRA. You said “the Fed says you can bunch the amount and take all of them from any account you choose.” Does that mean the CU must comply with Federal regulations? I have bunched them together in the past but not to the extent that it closed the CD.

MY2CENTSWORTH | Dec 22, 2022 | 436 posts since 2016

Cdbob, The IRS states you can total the amount for your RMD and take the entire amount out of one IRA, but as others have mentioned it may be up to the individual financial institution whether or not they will allow that as I don't believe that it is an IRS regulation. Here is some wording from the IRS, If you have more than one traditional IRA, you must determine a separate required minimum distribution for each IRA. However, you can total these minimum amounts and take the total from any one or more of the IRAs.Here is a link to the complete IRS Publication: https://www.irs.gov/pub/irs-pdf/p590b.pdf I have been in the habit of asking what exactly is allowed as far as RMD's are concerned before I open any new certificates. You didn't mention the FI's name, but probably best that you just call your financial institution and ask your specific question. I'm even most recently setting up the term of any new Traditional IRA certificates that I purchase to coincide with an upcoming RMD so there are no issues. They just mature during the year and I close it out and use it or reinvest it. Good luck!

Fussybob | Dec 22, 2022 | 16 posts since 2022

At Fidelity you can move CDs “in-kind” from a Fidelity IRA account to a Fidelity non-IRA account to cover the RMD but not affecting the CD yield and term length. I purchased a few $20-25K, 5%, 5 year, CDs in early Nov. My RMD in the next few years is approximately $20-25K each year. Next year I will just slide an IRA CD over to the non-IRA account to cover the RMD and taxes, and still keep the 5% CD intact. I will do the same in future years.

Cdbob | Dec 22, 2022 | 49 posts since 2017

Thanks for the link MY2CENTSWORTH, The Credit Union is Barksdale and the certificate is at 1.71% witch is why I’d like to close it. I still have about 2 years on it and figured if I could close it without having to pay the EWP that would work out fine. I’ll be trying after the first of the year and will post my results.

Cdbob | Jan 5, 2023 | 49 posts since 2017

Update: I took the full amount of the CD for my RMD and closed it without incurring a EWP. At first they were going to charge me the EWP but when I questioned it they checked with management and waved the penalty saying that it is a “gray” area of the rules. Thanks Barksdale FCU!

SouthernGirl | Jan 8, 2023 | 210 posts since 2022

Cdbob,
I am glad you questioned the EWP and you are correct. You are mandated to take RMDS without an EWP. FYI, Barksdale FCU Truth-In-Savings Disclosure for Certificates do not mention IRA's at all. Therefore, RMDS is not listed as an exception to EWP on the certificate disclosure. I agree it is a "gray" area for Barksdale FCU, as it is not disclosed at all how RMDS withdrawals are permitted on their IRA Certificates. I think the method is make it up, as you go and charge everyone an EWP, if you can.

Choice | Jan 8, 2023 | 937 posts since 2020

Those with IRAs that are ambiguous as to waiving EWPs for RMDs should consider sending a letter (ideally before funding) noting ambiguity and that you expect no EWPs upon withdrawals for same. Your attorney could be of assistance if the amount is….

Cdbob | Jan 9, 2023 | 49 posts since 2017

SouthernGirl, I agree that many CU’s make it up as they go. There really needs to be legislation that defines RMD’s more completely. It’s rather difficult for the consumer to define and remember all the rules at every CU before they open a CD. If the government says that you can bunch them then that should be the rule. Actually the whole IRA transfer rules need to be revised. Trustee-to-trustee transfers should not take two weeks. This forces CU’s to not be willing to lock the rate while the money is transferred. Just another example of how everything the government touches is complicated and wasteful. Years ago I had one transfer that was miscoded and it took me over a year to straighten it out with the IRS. And in that year I received numerous threats to seize my bank accounts and place a lien on my home. It was very stressful and unnecessary. I can’t tell you how many letters and how many hours I sat on the phone only to be disconnected. After that experience I try to avoid any questionable issue involving the IRS!

Choice | Dec 21, 2022 | 937 posts since 2020

Some other concerns...be prepared to show it what the RMD was last year and year before (consistent?)...last resort...tell them they can put it into your checking account there and they can place a hold for 61 days. I do what you're suggesting but not to the extent, i.e. I have consistently taken X dollars (for my entire RMD) out over the years and out of one account... Good Luck

Cdbob | Dec 22, 2022 | 49 posts since 2017

Thanks Choice. you said “ .last resort...tell them they can put it into your checking account there and they can place a hold for 61 days. The only account I have with them is the IRA CD and my share account. Not sure what putting the funds in my share account for 61 days would accomplish. Please explain. I also have lumped my MRD into one withdrawal at other CU’s but not to the extent that it closed the CD.

Choice | Dec 22, 2022 | 937 posts since 2020

One has 60 days to roll a distribution over w/o it being deemed income for the year...may I suggest you need to read/research more! While I may not have been clear I surmise you (really) don't gather what I was talking about! But it's only money! Good luck

Cdbob | Dec 22, 2022 | 49 posts since 2017

Choice, I did understand what you were saying but I don’t know what it would accomplish. If the CU was willing to withdraw the full amount and place it in my checking account for 61 days, then they should be willing to give me a check, as the responsibility for claiming the income lies with me. What my concern was was whether they would be allowed to charge me a EWP for closing a certificate early.

lou | Dec 22, 2022 | 1,004 posts since 2010

I have been told that this Omnibus Bill which is being debated now will defer the age for RMD's from 72 to 73. I think this would be for people born in 1951 to 1955. For younger people it can be up to 75.

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