IRA rollover question
I have 74 year old client with an IRA in a CD at a bank. there is an early withdrawal penalty for him to transfer it. the early withdrawal penalty is waived if he closes the CD and takes a distribution.
Can we take that distribution and put it into his IRA? A rollover within 60 days?
The bank is telling him he is too old to open an IRA, so he would not be able to rollover the IRA funds. Is that correct? I have never heard that one.
Permalink Submitted by Alan - IRA critic on Wed, 2014-07-09 19:26
He can open an IRA to receive a rollover, but he can only make regular IRA contributions to a Roth IRA if he has earned income, but not to a traditional IRA. With respect to the rollover, through the end of this year he can only do one rollover in a 12 month period per IRA account and starting next year he can only do one for all his owned IRAs combined. The new requirement is not good for CD investors because banks often may it difficult or expensive to do direct transfers, but CD investors must be very careful not to violate the rollover limitation when doing indirect 60 day rollovers.
Permalink Submitted by Keith Springer on Wed, 2014-07-09 19:38
thank you. do you have the IRS code or language that i can show him that shows that he can open an IRA to do a rollover?
Permalink Submitted by Alan - IRA critic on Wed, 2014-07-09 21:42
There are no codes that limit opening an IRA, only codes that address contributions made to an IRA. There are two types of contributions, regular contributions that are limited by age (except Roth) and rollover contributions for which there are no age limits. Rollover contributions are described in Sec 408(d)(3) in this link: http://www.law.cornell.edu/uscode/text/26/408. Note that if there were age limits to do rollovers, everyone over that age would be stuck with their current custodian for the remainder of their life. Client could go anywhere and ask that an account be opened to receive a rollover contribution and he would not be refused.