Bank IRA CD’s
Why am I under the impression that a person age 65 and older is not bound by the terms and restrictions of a bank CD and can withdraw funds at any time without fear of the CD restrictions?….This is in reference to BAnk IRA CD’s…..Am I incorrect in my thought processes?
Permalink Submitted by Jose Morales on Wed, 2009-12-16 17:22
Yes, you are incorrect. You are confusing the IRS’s tax penalty, which does not apply to anyone taking an IRA distribution upon attaining the age of 59 1/2, with the penalties and/or fees associated with the product that you have chosen to invest your IRA funds in.
Just think about this for a second, if you were no longer bound by the terms and conditions of the contract that you entered simply because you were over 59 1/2 how would that stop you from closing and reopening your IRA CDs every time the rates changed in your favor? It would be ridiculous to chose anything but the CD term with the highest rate since the term would really mean nothing anyway. Banks would have to seriously reconsider offering CDs as IRA investment options as they would really be a transactional account with a ridiculously high rate. I’ll go a step further and let you know that a bank can charge an interest penalty for breaking the term of a CD even if you are over the age of 70 1/2 and taking your mandatory distribuiton, if they choose to.
It doesn’t help that this myth regarding CD penalties not applying to those over the age of 59 1/2 is mostly perpetuated by front line employees of banks who do not have a strong grasp of IRA regulations.