distribution amounts over the RMD
On a bank IRA CD there seems to be some confusion regarding any penalties when you take out money over the RMD amount. For IRS and other regulations covering the 70 1/2 you can take out any amount at any time. However, for Bank rules covering CD’s and their maturities it is different. For instance, you can only take out the interest without penalties and then you will be penalized. It varies with different banks.
Does anyone have any further information on this?
Permalink Submitted by Alan Spross on Mon, 2009-01-26 21:05
These are two unrelated issues.
The IRS publishes the RMD requirements, and also early distribution penalties and their exceptions. These are all handled on your tax return.
But any investment product you hold, whether inside an IRA or not may contain it’s own early withdrawal penalties, surrender charges, contingent deferred sales charges, various loads etc. These fees are paid directly to the bank, insurance company, fund sponsor etc and are in addition to any IRS penalties.
A bank CD product that is purchased in an IRA may have an exception to their own early withdrawal penalty for amounts up to the RMD, for death of depositor etc. But if they do not, the IRA owner may end up with a choice of incurring the bank penalty to avoid an IRS penalty.
Example: IRA subject to RMD at 70.5 invested in CD that does not offer exception to early withdrawal for RMDs. Unless you have other IRA assets that can satisfy the RMD amount, you might be forced to pay the bank penalty to pull the RMD out of the CD. This is why some additional planning is needed once RMDs must begin.