Bank Penalty on an IRA

Submitted by Nancy Poeling on Sun, 2023-01-01 01:54

I decided to move my IRA from bank 1 to bank 2. Bank 1 was giving me 1% interest & Bank 2 is giving me 5% interest with yearly bump ups for 5 years. I moved it 4 years before maturity.

I did a rollover, bank 1 took out a $25 fee for the check & @ $4,000 in penalties. I protested but figured at 5% I would be making enough in year 1 to make up the difference(loss).

About 2 weeks after I moved the money to bank 2, (rollover) bank one sent me a refund for all the fees & penalties. There is no coding on the letter but to say we decided to return your fees & penalty in full, Merry Christmas

So, I can’t put this into the rolled over IRA at the new bank. I don’t know if bank 1 will code this as an additional RMD for 2022, or is it just cash in hand. The bank isn’t going to want to declare it as their income which is why they did not code it. So what do I do? Wait till I get a 1099 at the end of January before I cash it? Can I consider it part of the RMD for 2023? How will the IRS view this money? It really is IRA cash. But how will this bank code it at the end of the year? Should I contact this bank & ask them to reopen my old IRA for the +$4,000 & will they? FYI, the Bank is US Bank, convicted of fraud on a regular basis.



Submitted by Alan - IRA critic on Sun, 2023-01-01 02:42

  • You were subject to RMDs in 2022 and there are timing requirements, with your first distribution in an RMD applying to the RMD and therefore not eligible for rollover. There is also a one rollover limitation over a 12 month period. Since you did not move the funds by a non reportable transfer, hopefully you had completed your annual RMD before receiving the first distribution. And if so, this second distribution is not eligible for rollover, and banks are often  oblivious  to these rules. One option for the recent check is to convert it to a Roth IRA because conversions are not limited by the oner ollover limit. You will still owe tax on the distribution, but the funds would be in a Roth IRA with no RMDs required. Otherwise, you could just keep the money, but it will be reportable as taxable income. 
  • If you already have a Roth IRA, your Roth accounts are probably qualified and tax free, but if the Roth is also in a CD, you would have to open a new Roth account. 
  • IRA custodians do not report RMDs any differently than other distributions, nor do you on your tax return. If your RMD had been completed, this is just an extra distribution, not an RMD but because of your previous rollover, the only way to keep the 4000 in an IRA is to convert it to Roth within 60 days of receiving the check.
  • You might consider opening a brokerage account and purchasing brokered CDs if you want to invest in CDs. There is just one single account, and it can hold CDs from different banks. Right now the rates are competitive with direct bank CDs, and you only need one account. Interest paid on brokered CDs goes into the money market fund in the same brokerage account.


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