Permalink Submitted by Alan Spross on Tue, 2010-02-23 03:31
I assume you are asking whether banks usually allow RMD distributions without assessing an early withdrawal CD related penalty. A couple regular posters have a background with banks and I hope they can provide an approximation of the usual agreement provisions on that.
Two additional related issues are:
1) Their normal practice in offering direct transfers since no distributions can be rolled over for a non spouse beneficiary.
2) Early withdrawal charge for re registration of CD to beneficiary and/or allowing favorable interest rate to be continued for beneficiary.
Permalink Submitted by Daniel Baratz on Tue, 2010-02-23 18:02
I have had this argument with Wachovia Bank a number of times. The situation I encountered is this:
My client is a widow who inherited several IRA CD’s held at Wachovia. She went to the bank and re-titled them as beneficiary IRA’s for her benefit. We elected to do it this way because her late husband was over 591/2 at the time of his death and she is only 54. He, however was not over 70 1/2 so this would give her the most options on distribution. What I did not realize at the time is that Wachovia refuses to allow an outgoing trustee-to-trustee transfer of this account to another like-titled beneficiary IRA. They will give her distributions not subject to any bank-imposed premature withdrawal penalties at any time because she inherited the CD. She also is not subject to the 10% excise tax because she is withdrawing as a beneficiary.
The problem for us is that we really didn’t want to keep the money there but have found out we may not be able to move it. Now, she can always just take a distribution and do a 60-day rollover to her own IRA but then she loses the ability to draw on the account without penalty prior to her own turning age 59 1/2. I have been unable to make any progress with them on this. I haven’t really tried since Wells Fargo took over and don’t know if that could change the policy. I also don’t know if some of the new regulations requiring qualified plans to allow transfers for non-spouse beneficiaries would extend to IRA’s or not.
That has been my experience with bank CD IRA’s, which for me has not been a good one. I think it just highlights the importance of reviewing any IRA custody documents prior to having a client open an account. If anyone has any ideas on how to compel Wachovia to transfer, I am all ears!
Permalink Submitted by Alan Spross on Tue, 2010-02-23 18:17
If the client opens an inherited IRA with the preferred custodian, would Wells issue the check made out to that custodian “FBO (client) inherited IRA”. They would not do an automated transfer, but simply give the check to the client to deliver to the new custodian. This is still considered a transfer and not a rollover, but perhaps would be more acceptable to Wells.
Unfortuneately, the mandatory transfer per Sec 401(a)31 does not apply to IRA custodians. All the public can do is apply competitive pressure to them.
Permalink Submitted by Jose Morales on Wed, 2010-02-24 17:20
I had a detailed response but unfortunately my session timed out as I had other matters to attend to.
This is really going to be up to each bank and based on their own policy and system limitations. I would imagine that every bank has a policy of waiving the interest penalty for breaking the term of a CD when the owner of the account passes away. If the beneficiary then chooses to move those funds into a beneficiary IRA then they really need to take into account what their needs will be from this new account. If they will be required to take a distribution every year then a long term CD doesn’t seem to be the wisest choice, unless the bank waives their interest penalty for beneficiaries from the new account as well.
I am surprised to hear that Wachovia/Wells Fargo would not allow a transfer of a beneficiary IRA out to another financial institution, especially since most banks are more than happy to have these accounts leave their financial institution.
Permalink Submitted by Bruce Steiner on Wed, 2010-02-24 22:27
See PLR 200450057 for the ability of a spouse to do a rollover to an inherited IRA in her deceased husband’s name, with herself as beneficary.
Regardless of whether the’s the spouse, she could set up an inherited IRA elsewhere and have the new custodian send in the transfer forms. Sometimes the outgoing custodian is more amenable to following the instruction coming from the new custodian than following the instruction coming from the beneficiary.
Permalink Submitted by Alan Spross on Tue, 2010-02-23 03:31
I assume you are asking whether banks usually allow RMD distributions without assessing an early withdrawal CD related penalty. A couple regular posters have a background with banks and I hope they can provide an approximation of the usual agreement provisions on that.
Two additional related issues are:
1) Their normal practice in offering direct transfers since no distributions can be rolled over for a non spouse beneficiary.
2) Early withdrawal charge for re registration of CD to beneficiary and/or allowing favorable interest rate to be continued for beneficiary.
Comments, please……………
Permalink Submitted by Daniel Baratz on Tue, 2010-02-23 18:02
I have had this argument with Wachovia Bank a number of times. The situation I encountered is this:
My client is a widow who inherited several IRA CD’s held at Wachovia. She went to the bank and re-titled them as beneficiary IRA’s for her benefit. We elected to do it this way because her late husband was over 591/2 at the time of his death and she is only 54. He, however was not over 70 1/2 so this would give her the most options on distribution. What I did not realize at the time is that Wachovia refuses to allow an outgoing trustee-to-trustee transfer of this account to another like-titled beneficiary IRA. They will give her distributions not subject to any bank-imposed premature withdrawal penalties at any time because she inherited the CD. She also is not subject to the 10% excise tax because she is withdrawing as a beneficiary.
The problem for us is that we really didn’t want to keep the money there but have found out we may not be able to move it. Now, she can always just take a distribution and do a 60-day rollover to her own IRA but then she loses the ability to draw on the account without penalty prior to her own turning age 59 1/2. I have been unable to make any progress with them on this. I haven’t really tried since Wells Fargo took over and don’t know if that could change the policy. I also don’t know if some of the new regulations requiring qualified plans to allow transfers for non-spouse beneficiaries would extend to IRA’s or not.
That has been my experience with bank CD IRA’s, which for me has not been a good one. I think it just highlights the importance of reviewing any IRA custody documents prior to having a client open an account. If anyone has any ideas on how to compel Wachovia to transfer, I am all ears!
Dan
Permalink Submitted by Alan Spross on Tue, 2010-02-23 18:17
If the client opens an inherited IRA with the preferred custodian, would Wells issue the check made out to that custodian “FBO (client) inherited IRA”. They would not do an automated transfer, but simply give the check to the client to deliver to the new custodian. This is still considered a transfer and not a rollover, but perhaps would be more acceptable to Wells.
Unfortuneately, the mandatory transfer per Sec 401(a)31 does not apply to IRA custodians. All the public can do is apply competitive pressure to them.
Permalink Submitted by Jose Morales on Wed, 2010-02-24 17:20
I had a detailed response but unfortunately my session timed out as I had other matters to attend to.
This is really going to be up to each bank and based on their own policy and system limitations. I would imagine that every bank has a policy of waiving the interest penalty for breaking the term of a CD when the owner of the account passes away. If the beneficiary then chooses to move those funds into a beneficiary IRA then they really need to take into account what their needs will be from this new account. If they will be required to take a distribution every year then a long term CD doesn’t seem to be the wisest choice, unless the bank waives their interest penalty for beneficiaries from the new account as well.
I am surprised to hear that Wachovia/Wells Fargo would not allow a transfer of a beneficiary IRA out to another financial institution, especially since most banks are more than happy to have these accounts leave their financial institution.
Permalink Submitted by Bruce Steiner on Wed, 2010-02-24 22:27
See PLR 200450057 for the ability of a spouse to do a rollover to an inherited IRA in her deceased husband’s name, with herself as beneficary.
Regardless of whether the’s the spouse, she could set up an inherited IRA elsewhere and have the new custodian send in the transfer forms. Sometimes the outgoing custodian is more amenable to following the instruction coming from the new custodian than following the instruction coming from the beneficiary.