Under Reg. D we must charge a penalty of 7 days interest if a CD closes within 6 days after it is opened. IRA rules say a person can revoke an IRA within 7 days without paying a penalty. Which is right?

When Processing IRA revocations the entire amount of the contribution must be returned to the customer. Any interest earned on the account while it is open is not returned to the customer. I think that charging a penalty of all the interest earned is acceptable for a time deposit closed in the first seven days.

The "without penalty" referred to is an income tax penalty, not your bank's early withdrawal penalty. The same question comes up about "penalty-free" withdrawals from IRAs after age 59-1/2. You are free to charge a penalty for the early withdrawal (as long as it was in the Reg DD disclosure you gave the customer on account opening).

The entire contribution amount, and no more than the contribution amount, must be returned for an IRA revocation. $3,000 in, $3,000 out. No increases for interest earned, no decreases - Treas. Reg. 1.408-6(d)(4)(ii)(A)(2) - "without any adjustment for such items as sales commissions, administrative expenses or fluctuation in market value". Under no circumstances return anything but the contribution amount - no other rules or regs. are taken into account.

Mr. Hawaii is correct...IRC requires you to return the entire amount to the depositor if the account is revoked within 7 days.

Just a clarification on the 7 days - you can either give out the IRA Disclosure Statement 7 days before the IRA Plan is established, or you must allow them to revoke it within 7 days after establishment if you provide the Disclosure Statement less than 7 days in advance.

And this only applies to the IRA Plan Agreement, not the investment you put the funds into. I know I may be splitting hairs here, but it is an important distinction.

If you allow clients to open additional IRA investments under a single Plan Agreement (5305, 5305-A, etc.), the 7-day revocation period only applies to the first investment made under that Plan. Any subsequent investments are made with the understanding that they've already received the Disclosure Statement on that Plan and had the opportunity to revoke it the first time they purchased an IRA CD.

Of course, if you have your clients complete new IRA Plan Agreements every time they open a new investment, you have to give them a chance to revoke every single time.