If you decide that you want to move your IRA funds to another financial institution but part or all of the funds are currently in a certificate of deposit (CD), you’ll need to call your current financial institution to learn what specific steps you need to take. While you may be able to roll over the IRA in such a way as to avoid tax-related penalties, many financial institutions still will charge early-withdrawal fees if you don’t wait until the CD matures and the time period you selected has elapsed. Find out more about the general process of rolling over IRAs, as well as the distinct requirements of rolling over an IRA CD. Whether you choose to risk taxes and fees at a given time depends on the reason for your transfer of the CD—but having all the information helps you make your choice wisely.
How To Transfer an IRA CD
Be aware that each CD is specific to a given institution. To start with one IRA CD and end up with a different institution holding your IRA CD, you’ll need to complete or close the first CD in an early withdrawal, roll over those funds, then open a new CD. The first step to transferring an IRA CD is to note the maturity date and contact your financial institution to tell them that you don’t want to renew the CD. There typically is a specific window during which you can make changes after a CD matures, but some institutions will just start a new CD with the funds in an automatic renewal if they don’t hear from you. Once you do this, you’ll need the information for your new IRA in order to complete the transfer. You can either have the financial company complete a direct transfer to the new account, or withdraw the money yourself and deposit it within 60 days in the new account without penalty. If you opt to withdraw the money to roll it over, your bank will submit Form 5498 for you to the IRS, reporting that this money was rolled over, not taken as a distribution. Using the language of rolling over or transferring the money is important because simply withdrawing it incurs penalties from the IRS.
How IRA Rollovers Work
There are two ways money can move tax-penalty-free from IRA to IRA. One is when the institutions directly transfer the funds without your touching them, which is called a trustee-to-trustee transfer. The other way is to roll over the IRA by taking the desired funds out and depositing them in a new IRA before 60 days elapses. The best way to ensure an IRA rollover will work correctly is to roll over from the same kind of account; in other words, a Roth IRA to a new Roth IRA, for example. However, the IRS does provide a chart that helps you see what kinds of retirement accounts can roll over into other kinds of retirement accounts. If it isn’t an allowable rollover, such as from a Roth IRA to a traditional IRA, it will be counted as a distribution from one account and a contribution to the new account—both of which have limits and penalties associated with them.
Avoiding Penalty Taxes and Fees
Keep four ideas in mind when you’re looking to transfer an IRA CD, and remember that you’ll be transferring the funds from this CD, not the CD itself. If you wish to keep those funds in a CD in the new institution, you’ll need to open a new CD under the terms of that bank or financial institution.
Wait Until CDs Mature
CDs may have special circumstances that allow you to avoid an early-withdrawal penalty, and you can check to see if you qualify for a waived penalty. However, typically, if you withdraw CD funds before the maturation date, you’ll pay some kind of penalty, so waiting until your CD is almost mature, then beginning this process is the best way to avoid those penalties as you move funds over to another institution for a new CD.
Direct Transfer Between IRAs
Many institutions can complete a transfer between one IRA and another qualifying IRA at a different institution if you provide all the right information. This frees you from having to complete the deposit paperwork yourself after initiating a rollover.
Keep in Mind the 60-Day Window
If you do take a rollover, make sure the funds are all safely in the new IRA by the time 60 days pass, for the IRS to see it as a rollover rather than a distribution. They may charge tax penalties for withdrawing this money if you don’t make the deadline, especially if you aren’t yet old enough to be eligible to take distributions from an IRA.
Liquidating IRA CDs Before Retirement
If you hold money in an IRA CD and are considering liquidating it to get cash, first find out just how much you’ll owe in fees and tax penalties—especially if you aren’t yet at retirement age. CDs that haven’t fully matured will have fees, and taking early distribution from IRAs incurs both income tax and a 10% penalty—all of which you would avoid if you can find, borrow, or earn cash some other way.
