IRA Withdrawals Before CD Maturity Answer by David Dickinson, BOL Guru Guru BIOS
Question: We offer fixed rate and variable rate IRAs. Our TIS disclosure says you cannot withdraw from any IRA before maturity. But how can we say that if by law customers are allowed, and in some cases required, to withdraw from an IRA? I am having trouble figuring out how to "style" the TIS disclosure for my platform system.
Answer: The "normal" rules allow a bank to impose whatever early withdrawal penalty they want, as long as it meets the Reg D minimum of 7 days penalty within the first 6 days of deposit or following a partial withdrawal. This is true for IRA CD's with a slight twist. The following is taken from our Advanced Deposit Operations manual (available at the BOL Banker Store):
IRA rules, written by the IRS, allow depositors to have a rescission period during the first week after establishing an IRA. Regulation D must parallel the IRA rules, so an exception to Regulation D’s definition of time deposit waives the penalty for an IRA closed within the first seven days. If an IRA customer closes their new IRA on day seven or before, their total principal is returned. However, all interest earned must be forfeited. If the customer closes the account on day eight or after, the bank may impose its normal early withdrawal penalty (to include principal, if necessary). On day eight or after, waiver of the penalty is the bank’s option.
[§204.2(c)(1)(i) footnote 1(a) – page 7575].
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