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#670888 - 01/24/07 02:19 PM Early Withdrawal Penalty for IRA
CABCompliance Offline
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Joined: Feb 2004
Posts: 111
This may be a stupid question, but can we charge an early withdrawal penalty on an IRA?

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Deposits and Payments
#671406 - 01/24/07 08:00 PM Re: Early Withdrawal Penalty for IRA CABCompliance
David Dickinson Offline
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David Dickinson
Joined: Nov 2000
Posts: 18,762
Central City, NE
Yes. If you are referring to an IRA in a CD, there is a twist. The following is from our Advanced Deposit Operations Manual:

Special Rules for IRA's:
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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#672039 - 01/25/07 04:28 PM Re: Early Withdrawal Penalty for IRA David Dickinson
CABCompliance Offline
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Joined: Feb 2004
Posts: 111
Thank you.

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#675008 - 01/29/07 09:46 PM Re: Early Withdrawal Penalty for IRA CABCompliance
TaraHay Offline
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Joined: Jan 2007
Posts: 45
You also can't charge a CD penalty to beneficiaries after the owner dies. I think there was one other instance where a CD penalty couldn't be charged, I could find it if you need it.

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#684394 - 02/09/07 07:34 PM Re: Early Withdrawal Penalty for IRA TaraHay
CABCompliance Offline
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Joined: Feb 2004
Posts: 111
That would be great.

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#684458 - 02/09/07 08:05 PM Re: Early Withdrawal Penalty for IRA CABCompliance
Compliance2U Offline
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Compliance2U
Joined: Apr 2006
Posts: 110
Midwest
I don't think that you CAN't charge an early withdrawal penalty, but that you MAY waive the fee:

1. Where the time account is held for an IRA, Keogh or "401(k) plan" when the owner attains age 59 1/2 or is disabled or thereafter; (or according to David's post above)
2. Upon the death of any owner;
3. When any owner is determined to be legally incompetent by a court; or
4. Where the deposit is withdrawn within ten days after the maturity date even though the contract provided for automatic renewal at the maturity date.

Please correct me if I am wrong.

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#684614 - 02/09/07 09:38 PM Re: Early Withdrawal Penalty for IRA Compliance2U
TaraHay Offline
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Joined: Jan 2007
Posts: 45
I'm positive that our IRA advisors (Pension Management) told us that there were only three instances where a bank was not ALLOWED to take a penalty.

The first was if the customer revoked the IRA within 7 days of it being opened.
The second was if the IRA owner died.
The third is the one I can't find anywhere, but I think it may be something to do with disability. If I get some time, I can look more.

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#684626 - 02/09/07 09:46 PM Re: Early Withdrawal Penalty for IRA TaraHay
Compliance2U Offline
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Compliance2U
Joined: Apr 2006
Posts: 110
Midwest
TaraHay~ Maybe IRA rules are different than general time deposit account requirements.

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#684647 - 02/09/07 10:01 PM Re: Early Withdrawal Penalty for IRA Compliance2U
TaraHay Offline
Junior Member
Joined: Jan 2007
Posts: 45
Yes, those three instances I'm referring to are only if the CD is part of an IRA. I'm not sure of the rules for regular CDs, but the OP was asking about IRAs.

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#763468 - 06/28/07 03:58 PM Re: Early Withdrawal Penalty for IRA TaraHay
mkp122 Offline
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Joined: Aug 2005
Posts: 219
NJ
We waive penalties if the customer is over 59 1/2. However we recently had a customer who was 72 come in and close their IRA CD with us to roll the IRA over and we still waived the penalty. Just curious if any banks actually do charge penalties even though the customer is over 59 1/2.

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#763505 - 06/28/07 04:15 PM Re: Early Withdrawal Penalty for IRA mkp122
#Just Jay Offline
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#Just Jay
Joined: Oct 2006
Posts: 14,390
Cheeseheadland
Yep, you bet. They entered into a term contract, not a high rate savings account.

But in order to accomodate the RMD's, we allow a customer 59 1/2 to 71 to withdraw up to 10% of the IRA CD per year penalty free, and those over 71 to withdraw up to 20% of their IRA CD per year penalty free.

The last bank I worked for also charged a plan termination fee...$40 on the last IRA account the customer moved from the bank, either via withdrawl or trustee transfer.
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