On IRA Time Deposit customers that have reached 59.5 and are not in a grace period we have been waiving the early withdrawal penalty. My understanding is that its bank option to charge or waive per Regulation D §12 C.F.R. 204.2(c)(1)(i)footnote 1(a)- but our standard practice has been to waive our penalty. I wanted to bouce off BOL to make sure my understanding is correct before I recommend a change.

Your understanding is correct.

If you are thinking about imposing a penalty consider waiving it up to the amount of the RMD once a year. Alternatively, once the customer reaches age 65, but, again, once a year.

Obviously, IRA participants less than 70 1/2 do not have an RMD, they are not being forced to withdraw the funds. (Those who inherited an IRA do have an RMD regardless of their age.) Your bank sold the time deposit knowing some of its customers would be required to withdraw funds at some point and penalizing them for what you knew was going to happen when you made your bargain doesn't look too good.

Thanks for the counsel Ken. That makes good sense.

Agreed. I waived penalty on all RMDs (anything more than the RMD amount was done seperately and charged early withdrawal). Death distributions were waived for any CD, IRA or not.

Changing penalties on CDs can be very confusing to both customers and staff. I found that the easiest way to manage the process was to convert each maturing CD to a new CD type (different CD code). This ensured that penalties were correct for customers under the "old" CD rules and the "new" CD penalty rules because the system penalty settings were correct and could be relied upon. Nobody had to try to determine whether the penalty was supposed to be charged or waived based on the effective date of the change and customer's last CD maturity date.