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Will Your IRA CD RMD Be Subject To An EWP?

Bozo
  |     |   1,375 posts since 2011

As I turn 70 1/2 this year, the question is of more than academic interest to me. For those DA readers at or nearing RMD territory, it's an issue which might be worthy of inquiry.

Background: In the year a person attains the age of 70 1/2, RMDs of IRAs must commence. The IRS allows the RMD to be satisfied by a withdrawal from one IRA account, or multiple accounts. Many financial institutions waive the EWP on partial, early, withdrawals on IRA CDs for RMDs. They may, or may not, waive the EWP as to that portion of a RMD not attributable to your IRA CD with them. A few financial institutions allow partial withdrawals from IRA CDs with no EWP for those over age 59 1/2. This is generally called a "normal" distribution. As far as I know, you can satisfy your RMD with a normal distribution.

Example: Jack has an IRA CD with XYZ credit union. The Truth-in-Savings Disclosure provides that EWPs will be waived for RMDs. Jack has $1,000,000 total in IRA accounts (stocks, bonds, CDs) and wants to satisfy his $36,400 RMD by a partial withdrawal on his IRA CD at XYZ. His IRA at XYZ is in the amount of $50,000. Will Jack be hit with an EWP?

Analysis: He might, notwithstanding the broad language in the TiS Disclosure. The credit union could take the position the waiver language applies only to the RMD directly attributed to Jack's IRA CD at XYX. He could withdraw $1820 without EWP; beyond that he could be socked with an EWP, or even told a partial withdrawal in the amount he seeks is not allowed.

What's Plan B?: Fortunately, Jack also has IRA CDs with StateFarmBank and PenFed. Each allows (subject to the standard "we may" permit caveat) partial withdrawals from IRA CDs after age 59 1/2 with no EWP. Jack has a $50,000 IRA CD with SFB and another $50,000 IRA CD at PenFed. Jack can satisfy his RMD by a partial withdrawal from either, or both, with no EWP.

Bottom Line: When mapping out any RMD strategy where IRA CDs might or will be used as a funding source. make sure your assumptions and the financial institution's policies are consistent. If the language in the TiS Disclosure is a tad vague (rest assured, it might well be), set forth your intentions in writing, and get clarification in writing. Then, in an over-abundance of caution, have a Plan B, like Jack.

PS: Credit to the DA poster who raised this issue some time ago (whose posting handle I forget; my apologies).

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Ally6770
  |     |   4,307 posts since 2010
You must leave $1000 in Pen Fed's IRA CD if you do not want a penalty. But you can take it all out leave $1000 and at any time take out the $1000 and that will be a very small penalty on the $1,000. Not sure how State Farm will work.
Also if you are in CD's and do not need the money take it out near the end of Dec leaving the money to earn interest longer. 
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anon123
  |     |   20 posts since 2010
I spoke to a Penfed supervisor about this recently. They indicated you can completely close out the CD or leave an amount over $1k without EWP. So, my understanding is that you do NOT have to leave $1,000 in the CD if you don't want to.
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Ally6770
  |     |   4,307 posts since 2010
Ran into another issue yesterday. I filled out the papers for a Roth IRA transfer and the credit union that presently has the Roth IRA called yesterday and asked if I wanted the $25 fee taken out of my checking or savings account. I told them I would pick up the check myself and I would not pay the $25 for them to mail the check. That I would do it myself.
I did sign transfer papers. The check was make out to the new credit union FOB of myself and it also stated it was a transfer. I made a copy of the check and its stub and mailed the check just as the present credit union would have in their own envelope, but decided to send it with a return receipt so that could follow it on line.
The present credit union never sent any announcement out with the new charges. It was not in my disclosure agreement. I refused to pay it.
I would hope that others could do this also. If the institution is not near your home have them mail it to you and save yourself the fee. For anyplace charge you to mail a check to someone is ridiculous.
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johnbaker
  |     |   8 posts since 2017
This is really interesting...
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aaflygirl
  |     |   87 posts since 2016
I posted a couple of questions on this before seeing this post. Bozo, can you review my post on the community forum and see if you have an answer for me? Thank you. I would appreciate it.
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Bozo
  |     |   1,375 posts since 2011
As noted in my recent post in the other thread, the most prudent course (as always) is to explain exactly what you want to do, and ask whether an EWP will be assessed. Don't withdraw the funds and then try to argue about the EWP; it's a losing gambit.
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rockies
  |     |   295 posts since 2018
Bozo, Super post. I am still several years away from the 70 and a half. But, information on these kinds of nuances is very helpful to be thinking about now. Thank you for taking the time to write this.
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Bozo
  |     |   1,375 posts since 2011
rockies, re your Armistice Day post, planning for RMDs can be complicated. I've always felt that saving for retirement was simple when compared to managing drawdowns "in" retirement. The crazy gyrations in the stock market recently illustrate how programmed withdrawals from stock-heavy portfolios can be sub-optimal.

Wonkish: Economists note the trap of "sequence of returns". Simply stated, this is a trap where folks are cornered into programmed withdrawals from stock-heavy portfolios in a declining market. Retirees don't have current contributions, so their ever-increasing programmed withdrawals (usually based on RMDs) lose value both as a result of the programmed withdrawals and a decline in the market generally. This "double-whammy" can blow holes in retirement projections. So, what to do?

I am the Johnnie-Apple-Seed of the Bucket Strategy. As noted above and in other threads, have enough in IRA CDs to weather any reasonable downturn in stocks once you hit 70 1/2. It is axiomatic that stocks can go down, and stay down, for as long as stocks have gone up, and stayed up (over the past decade), My IRA CD stash can, if need be, fund my RMDs for the next 13-14 years. That's perhaps extreme, but does give my balanced portfolio of stocks and bond funds ample time to recover.
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Ally6770
  |     |   4,307 posts since 2010
Did learn today that no withdrawal penalties on IRA's are only for those over 70 1/2 at Pen Fed. Rules changed in Sept 2015.
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Bozo
  |     |   1,375 posts since 2011
ally6770, further to your comment of 26 minutes ago: I checked the PenFed IRA CD disclosures, and it would appear nothing has changed. Section XIII (4)(G)(iv) still provides an exception for EWP when the IRA CD certificate holder has reached the age of 59 1/2 and takes a partial withdrawal.
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Cal_Gal
  |     |   22 posts since 2018
I am a few years away from having to take my RMD but just had a birthday and was thinking exactly the same thing. I have a large IRA and a small IRA in two different credit unions. The small one is coming due later this month. (Also, I believe you can only move one IRA account per year so when renewing, keep that in mind so the maturity date is always staggered.) So how does one go about getting a signed statement that they don't impose an EWP for taking out the total RMD from one account? I can't just call and say...no EWP...ok, please type out and sign what you just stated and mail it to me. Has anyone been able to get it in writing, or?
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Ally6770
  |     |   4,307 posts since 2010
As long as it is a transfer from institution to institution you can do as many as needed. Have the receiving institution fill out the paper work or send it to you to fill out (also can be filled out on the computer) and the transfer can be made. You cannot actually have the check made out to you and then you physically move the IRA yourself but once a year. If the outgoing institution makes the check out to the receiving institution as trustee or custodian of yourself and then you receive the check you can count that as a transfer.
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Sagegriot
  |     |   10 posts since 2019
With regard to getting a written statement detailing the EWP policy, I have used the secure message system or “contact us” tab on the website to send a detailed description of the action I want to take followed by the question “ would EWP be assessed?” (or whatever). Then I print out the response and file it in a folder for that institution. Disclosure forms and statements tend to be vague, subject to interpretation, or outdated. I’m not comfortable with verbal advice.
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Bozo
  |     |   1,375 posts since 2011
Sagegriot (re your comment recently), your suggestion is excellent, but with one caveat. The CSR on the other side of the secure message may, or may not, have the authoritative answer.

For example, in two instances in two separate financial institutions (one a bank, one a CU), I inquired of the respective branch managers whether EWPs would be charged for RMDs attributable to my IRA balance overall, not just with them in particular.. I was assured they would not. In both cases, the "home office" disagreed.

My takeaway: This whole issue is, as you note, subject to interpretation. The only "interpretation" that counts is that of the home office which will process your withdrawal request. Accordingly, in your scenario, I might take the precaution of sending a copy of your secure message discussion to "home office" (attn: IRA Dept.) and obtain written confirmation.
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