12 month rollover rule , multiple CD’s in same Bank

Submitted by Joseph davis on Mon, 2018-11-26 18:49

Tricky question. I am aware of the once a year rule for rolling over distributions.

I have funds at an institution that lets you close a CD early without penalty, but they do it as a distribution, even if you keep the funds there and roll into an other CD

Wondering if you broke TWO cd’s at the same time (same day) , if the irs would consider that a violation of the 12 month rule for the second one. In other words , would each Cd be considered a seperate distribution , even though they were under the same IRA account in the same bank?



Submitted by Alan - IRA critic on Mon, 2018-11-26 20:02

  • I don’t think there is a clear answer on that. But the one rollover rule compliance is effectively done by the IRA custodians, not the IRS. However, if in your case each CD is a separate IRA account, then each distribution would generate it’s own 1099R, therefore if you report rollovers for both of them the IRS should simply see that two 1099R distributions were reported as rollovers.  Again, in your case, if you took more than one distribution to a new custodian, then the new custodian should refuse to accept the rollover, but who knows how much effort any custodian puts into detecting such violations.
  • You should either do a direct transfer or consider brokered CDs, offered by major brokerage firms. When each one matures, the funds go to a mm fund in the same IRA as there is only one IRA account number. There are no distributions or transfers, and these CDs are FDIC insured. This eliminates running around every time one matures, and eliminates both rollovers and transfers. 

Submitted by Joseph davis on Mon, 2018-11-26 20:18

Thanks for the quick reply.

  1. The monies  are not actually moved , they stay at the same bank, rolled into a new CD at a better rate.

 I’d have to looking into whether they would issue two 1099r’s or combine them .  I have a feeling they issue seperate account numbers per CD 

  • The reason I don’t have these funds  with a broker, is the no penalty break of the CD , That  feature is not available elsewhere .

  

Submitted by Alan - IRA critic on Mon, 2018-11-26 20:32

If funds never leave this bank and no check is issued to you, then these would be considered direct transfers and there would be no distribution, 1099R, or 5498.  You should verify with them now that there will be no 1099R issued, because if they issue one 1099R they will probably issue two, signaling two distributions to the IRS.

Submitted by Joseph davis on Mon, 2018-11-26 21:07

I’ve done this before, and they DID issue a 1099r, processing it as a distribution.   I know , it makes no sense on the face of it .  Apparently , in order to removed the funds from the CD penalty free, they need/want to do it that way.It’s been a while, maybe they changed the process. I’ll check , and see if I can get a straight answer.

Submitted by David Mertz on Mon, 2018-11-26 21:13

  • If the financial institution permits a trustee-to-trustee transfer to an different financial institution and also can accommodate a trustee-to-trustee transfer to them from a different financial institution, there’s no reason that they could not process the change of CD as a trustee-to-trustee transfer with themselves as both the originating and receiving trustee.
  • I’ve encountered banks whose front-office people don’t know the difference between a distribution and rollover and a trustee-to-trustee transfer.  In cases like this they end up mistakenly filling out the forms designating a distribution and rollover even though the same forms can be used to make it a trustee-to-trustee transfer just by checking the appropriate box on the form and ensuring that the payment is made directly to the new IRA CD (or at least to the financial institution) for your benefit, not to you personally.

Submitted by Joseph davis on Mon, 2018-11-26 23:31

fwiw, I just checked with them , and they seem to indicate they do not issue a 1099r if funds  stay within the bank, even if the CD is  broken.I’ll assume this is correct, and if somehow  it isn’t , it won’t be a deal breaker. It will just limit my flexability some.  Thanks again for your input.   

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