Are there credit unions other than PedFed that will allow distributions from an IRA CD without early withdrawal penalty if you are over 59.5 years?
Answers
Over the years some people have asked and answered this question, but there aren't a lot of them.
GTE will allow you to take 20% out without penalty if over 59.5, but I forget if it's 20% "total" or 20% "per year". They used to have that up on their webpage so you can check it out.
NWFCU is one that (supposedly) will let you take it out penalty free if over 59.5. There was some language on their webpage but it wasn't clearly worded or spelled out so I called them a couple years ago and the agent confirmed it -- but one never knows if that is accurate or not (a lot of times CSRs confuse the BANK'S penalty with IRS penalties). But I did notate for my records what NWFCU said at the time, the agent seemed to understand. Personally though, if I were to go with them, I'd call again to verify.
Note though, that NWFCU (and GTE)'s rates are lower than other places now. There's another place where I have my IRAs -- they won't waive the EWP but the rate is much better than NWFCU's. So it's something to consider. However, that's where the rates are today. I'm hoping the place I have my IRAs don't lower the rate for Jan (when I'll be able to move some IRA funds). If they lower it then I'll have another look at NWFCU (if NWFCU doesn't lower it as well) but be sure to factor in the rate as well.
One last thing: PenFed DOES NOT waive their penalty anymore. I called three times over the last year to verify this, because a number of people here have mentioned it. All of the CSRs I spoke to mention that if you're over 59.5 then you don't have a "penalty" (from the *IRS*), and mandatory RMDs don't have a "penalty" -- but when I specifically ask them "what if I had a 5yr IRA CD with you and I turned 59.5 after the first year and wanted to break it early after that, would PenFed still charge the early withdrawal penalty" -- and the answer each time was "yes, we consider it like any other CD, other than any RMD, if you break an IRA CD with us early you still have to pay the early withdrawal penalty."
So if this is important to you make sure you are CLEAR (and if possible, to see it in writing) that you're asking about the Credit Union's EWP penalty for COMPLETELY breaking an IRA CD early (if over 59.5) -- not mandatory RMD or IRS penalties.
Good luck.
If you find more places, please let us know!
1- Up front know your RMD amount (you may want to withdraw more than required) and fund an IRA CD for that amount, for the term length for your RMD date. Ladder IRA CDs in these smaller amounts, knowing you will need annual RMD withdrawal. Makes penalty not a factor; you are not breaking the CD; it simply matures the year you need it for RMD.
2- If the IRA CDs allow interest withdrawals, have the interest deposited to IRA Savings instead of into the CD. RMDs from savings.
3- Fund some no-penalty CDs to begin with
4- If you see a trade off with CUs & banks that have HIGH rates for CDs but will not waive penalty for RMD withdrawal VS ones with LOWER rates but no RMD penalties, then split money among them. Estimate ten years of RMDs. Keep that amount in places that will waive penalty CUs & banks.
Just some ideas to consider!
From internet search:
1- American Express QUOTE
Yes, you can take a distribution from your IRA CD before the maturity date, if required to satisfy your RMD. American Express will waive the bank penalty for early withdrawal in such situation.
https://www.americanexpress.com/en-us/banking/online-savings/faq/ira-rmd-cd/
2- Alliant Credit Union - Ken's blog here on DA - no penalty for RMD withdrawal
3- Ally - Ken's blog here on DA - no penalty for RMD withdrawal
4- Bank of America - Ken's blog here on DA QUOTE
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.
Except their rates aren't any good right now either. But Interior as well, at least according to the language in their Certificate Terms won't have an EWP penalty if over 59.5 (As with any place, call to verify).
By the way, the language at not only Interior but NWFCU has some clause like "at our option" EWP may be waived... and then lists the reasons (death of owner, owner over 59.5, etc).
By the way, SchoolsFirst has a penalty too, but they allow you to add to your ira cd at any time, even in following years, up to your yearly contribution limit amounts, as long as it's not a rollover from another institution (for a rollover you have to open up a new cd).
So it seems there's very little reason to go with Interior FCU anymore. Their penalties are no longer mild (365 even for 4 years) -- and the penalty CAN eat into the principal if not enough interest has been earned. I know some other places have similar terms, but there are also plenty of other places that are now much better than Interior. Interior used to have reasons to actually go with them despite their small size and the hassle of things often getting done at a snail's pace or incorrectly. Not anymore -- over the last 5 years or so their penalties became worse (twice now!), and their decent policies and reasons to go with them removed and taken away. I'd think twice before going with a place that keeps worsening their CD terms.
This is a little different than what you asked because 1. you have to close the entire CD; and 2. the closure can be for any reason and does not have to be in connection with a distribution. If you are anticipating the need for a distribution, I imagine you could open multiple smaller IRA CDs which you could close as needed. I don't know for sure that this policy is still in place.
Note that an early withdrawal penalty on an IRA is NOT tax deductible on your 1040.
