rollover

Submitted by Mark S. Littleton Sr. on Thu, 2019-09-26 15:58

IRA CD matures – going to transfer to new institution for better CD rate. Bank suggests I open a IRA money market account with proceeds just in case 10 day grace period lapses during the transfer to avoid auto rollover of original CD and bank interest penalties on that grace period lapses. Check finally arrives at new institution but their rates have changed so I request they send check back to original bank – IRA account never opened with new bank. Original Bank finally receives check back and basically voids it and the money market account is back to original amount. I open a new IRA with original bank with intention to fund it with money market account but have another IRA CD maturing with them so am waiting several days to roll that CD and the Money market funds into the new IRA CD. Am I OK with the rollover rules?



Submitted by Mark S. Littleton Sr. on Thu, 2019-09-26 16:03

Original CD matured 8-29-2019 and I am still within the 60 day grace period as of today 9-26-2019. Was the transfer to the money market account considered my only 365 day rollover?

Submitted by Alan - IRA critic on Thu, 2019-09-26 17:19

  • The rollover depends on how the two banks handle the 1099R situation, and you can only find that out by calling them. My guess is that the the funds were moved from the first CD to the MM IRA at the same institution by direct transfer (not a rollover), however when the bank issued a check to the new bank that will probably be treated as a 1099R distribution which you are now rolling back. But it is also possible that the return of their check will allow them to reverse the distribution reporting and therefore not issue a 1099R at all. I would also guess that since no IRA at the proposed new bank was ever funded, the new bank will not issue a 1099R since they could not have made a distribution until after they first accepted the funds. That is my reasoning, however the banks will do what they wish.
  • I am assuming that you did not take a distribution in the 12 months PRIOR TO 8/29/19 that you rolled over as that would eliminate any rollover now.
  • The one rollover rule could be enforced by the IRS based on the 1099R forms they receive, however this rule is mostly administered by the IRA custodians. That would happen if your old bank refused to accept funds back because they think you have used up your one rollover – and that depends on how they intend to report what has already occurred. As stated, you will need to have a discussion with them to determine what they will report and therefore where you stand.

Submitted by Mark S. Littleton Sr. on Thu, 2019-09-26 16:14

RMD owed by 4-2020 but plan to take it out of 3rd CD with same original bank but will need a few hundred more to make up the total RMD which I was going to take out of the new CD ??? HELP I do have other CDs at other banks I could use for this ??? HELP

Submitted by Alan - IRA critic on Thu, 2019-09-26 17:37

  • If you have a RMD due on 4/1/2020, that means that you reached 70.5 in 2019. That also means that IF any of these banks issue a 1099R, the amount will be deemed to include your 2019 RMD, and you cannot roll over that amount at all because it is an RMD. Another reason that a 1099R will be a problem.
  • Many banks allow an RMD distribution from their CD without an early withdrawal penalty. Now that you are 70.5, this is another question that you need to check into.
  • You can satisfy your RMDs in any combination from any of your IRA accounts, at anytime during the RMD distribution year. So you could distribute part of the RMD in 2019 and any remainder by 4/1/2020. Your first RMD will be less than 4% of your total 12/2018 IRA balance, so perhaps you should satisfy your total RMD from just ONE of these CDs. 
  • CD rates are dropping and banks will reduce APYs at different times. If you have any experience with brokerage IRAs, you might consider brokered CDs. This will allow you to shop many different banks for the best rates and have all the brokered CDs you want issued from the same IRA account. In other words, you never have to do a rollover because all the brokered CDs are purchased from the same account. For example you could have multiple brokered CDs in a single brokerage account. Typically these are FDIC insured with death puts, meaning that if you pass your beneficiary inherits with no early withdrawal penalty. The beneficiary is stated on the brokerage account, not on the CD itself. You may want to look into this, especially if you are not located in a large metro area with dozens of competitive banks. Vanguard, Fidelity and Schwab all offer a lineup of brokered CDs.
  • As you have probably figured out, moving IRA accounts between banks is a hassle, when banks often prefer to issue distribution checks rather than doing direct transfers. The one rollover limit makes this risky. Once your turn 70.5 and RMDs begin, you have an additional concern to deal with.

Submitted by Mark S. Littleton Sr. on Fri, 2019-09-27 04:18

I will talk with  Synchrony Bank to verify but I do not think they issued a 1099R but instead voided the check and returned it to my IRA MM acct. From what I am learning from you is that so long as I do this within each bank I am actually not rolling over anything just doing direct transfers one maturing CD to another. Correct?  Yes this is my first RMD birthdate Jan 7. I have already took an RMD from Discover Bank on 3-22 (the amount they calculated on my two CD’s $6800.14) I still need to take the balance of my first RMD from Synchrony Bank calculated on my four CD’s at $7404.86.  Do I need to do it before I move the Sychrony IRA MM into a new Synchrony IRA CD on 10-2 or can this wait till next year? Thank goodness I have it down to only two banks this year. You have been so helpful thank you and God Bless you are yours. Mark

Submitted by Alan - IRA critic on Fri, 2019-09-27 04:47

  • Any 1099R would not be issued until late January. However, the banks code transactions done during the year as either transfers or distributions, and distributions would trigger the 1099R issue in January. But you could ask them now to advise how they coded any transaction you have already done this year. They should be able to provide you with that info.
  • Yes, correct that changes of CDs within the same bank when no distribution check is issued to you would be a non reportable transfer, therefore no 1099R and no distribution.
  • At least Discover will issue the total RMD for both CDs from just one of them. But they probably would not agree to increasing that RMD to cover the RMD for another bank’s CD, but you could ask.
  • A distribution results in the RMD for that account being applied, but a direct transfer does not trigger an RMD since it is not treated as a distribution. Therefore, you could move a matured CD by direct transfer to another bank without triggering an RMD, and take the RMD later from the new bank. You can defer all or part of your 2019 RMD up to 4/1/2020. You will be taxed on these RMD in the calendar year they are distributed. Therefore, if you take no more RMDs this year and complete your 2019 RMD by 4/1, the portion you withdraw in 2020 will be taxed in 2020.

Submitted by Mark S. Littleton Sr. on Fri, 2019-09-27 17:46

Thank you Alan – Whata wonderful resource and help you have been. Blessings.

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