Now you are just confusing people. “Rollovers” are a conversion from one account type to another - pretty much, a 401k to an IRA. If you have an IRA, you can transfer it to another custodian the day after you’ve opened it, if you want - the transfer is a non-event.
There are no restrictions on transferring your current IRA funds to NFCU to take advantage of this CD offer. The only “one year limitation” that’s in play here is you rolling over your 401k to an IRA.
Of course, if your IRA is already invested in a CD, you’ll need to wait for it to mature before you can transfer the funds and invest in this NFCU CD - that is where “open with $50, then transfer in the rest later” might come in handy.
Understand the difference between a transfer and a rollover. Confusing the two is the biggest mistake people make when moving IRA accounts. It’s very important, because under Internal Revenue Service rules, you can transfer an IRA as often as you want, but you are permitted to roll over an IRA only once every 12 months. Do it more often than that and you are likely to incur a 10 percent penalty.
That confirms what I asserted up thread. It is copied and pasted from here:
The article at that same link I just posted for glitch99 also contains an additional gem. It’s another way you can get your fifty to NFCU without violating any IRS rules or paying a penalty. Here is the copy and paste of that portion of the article:
Use an alternate procedure if a trustee-to-trustee transfer isn’t possible; if you are not moving the entire IRA account, it may not be. For example, say your IRA is in two different funds from the Nest-Egg mutual fund family. You aren’t happy with the way one of them is performing, so you want to move that portion of the account to a new high-yield CD at Rocksolid Bank. In this case, you will probably need to withdraw the money in the form of a check. Be sure to instruct the fund company that the check must be issued to the bank and not to you. Although the check will most likely be sent to you, the payee should look something like this: “Rocksolid Savings and Loan FBO Jane Doe IRA.” The “FBO” stands for “for the benefit of,” and it means that you will not be able to cash the check yourself. So you still haven’t taken possession of the money, and it is still a transfer, not a rollover.
Deposit your FBO check with your new IRA custodian. As long as it has been made out in this format, the IRS will not consider you to have received a distribution from your IRA. This means that if you find a higher-yielding CD at another bank, you can turn around and transfer your IRA again whenever you like. You won’t have to report this type of transfer on your tax return, and you will not receive a 1099R form from the custodian for the tax year in which the transfer was made.
I respectfully and gently disagree with this assertion. I’ve just offered and documented two ways to accomplish this. And there might be a third way. Am working on that now.
Should also mention NOTHING I’m discussing here involves movement of funds from a 401k. Nothing at all.
Am discussing ONLY movement of funds from an EXISTING IRA to NFCU to lock in this deal.
This is how you are being confusing. This is false. (although I admittedly was off a bit too).
The only 12 month limitation is when you actually take possession of the money - the money is sent to you, even if you then write an equal check to deposit in an IRA with a new custodian. You can open this NFCU IRA and move as much money as you want, as often as you want, from your existing IRA no matter how old or new it may be. Just let the two companies do it directly.
If your money is currently invested in a CD, you are at the mercy of the terms of that CD. A CD at ABC bank cannot just be transferred to new custodian like a share of stock, a transfer out is inherently breaking the CD (I know there are brokered CDs that may be transferable, but those have never been discussed in this thread).
Yes, of course. I mean, there might be a penalty. But we’re only looking for fifty bucks. In a great many instances this small amount of money can be withdrawn from interest without any penalty at all.
To clarify, I’m certainly not suggesting anyone CLOSE an existing CD and move their entire IRA to NFCU. This whole exercise is an effort to find and extract fifty bucks, within the rules, so the IRA CD opportunity at NFCU will not be forfeited.
Well, I did go on to offer a couple of ways of accomplishing that withdrawal. But they are workarounds. The rules permit only a single rollover within a one year period, and I have documented that a couple of times so far.
I made mention of a third way to extract and seize upon the fifty you need to get going at NFCU. Am uncertain on this one but here is enough to get you started:
If your existing IRA CD was opened within the last year, and if you then try to roll over money in that CD to NFCU, there is apparently a 10% penalty imposed by the IRS.
I am not certain of this. But I think that 10% penalty might be on the amount of money you withdraw in contravention of the rules. In this case we are talking about just fifty bucks. So your penalty would be only five dollars!! Big whoop.
But, again, I have not completed the research and am not sure I have this right. But if it is only five bucks . . . well . . . just pay the five buck penalty and fuggetaboutid. Right?
Again, “opened within the last year” is irrelevant. You are penalized if you’ve done a rollover - where you’ve physically taken possession of the funds before depositing it with the new custodian - within the last year, regardless of when anything was opened. If you did such a rollover from ABC Bank to LMNO Bank 6 months ago, you cannot do a rollover from XYZ Bank to NFCU without being penalized. If you have not done any rollover in the last 12 months, you can open a new IRA at ABC Bank on 12/10 and roll it over to NFCU on 12/11 if you are so inclined.
The perceived “confusion” is in how you seem to assume that any existing IRA will be the result of a rollover, and thus subject to a 12 month wait before being able to do it again, when such a rollover is just one of many ways a new account can be established.
And again, you can simply instruct the bank to send the transfer directly to the new custodian, or have the new custodian request the transfer from the old account - which is what I assume most people do (or at least they should do) most of the time anyways - and the whole thing becomes moot.
Agreed. I was making that assumption. And on that assumption I am correct. However, I agree with you there are other ways the existing funds might have reached the existing custodian.
I take your point. Truth is, I never in my life have done custodian to custodian transfers . . . and I do not know or assume what most other people do.
Right now I’m just off the telephone with my bank trying to get them to agree to using the “FBO check” option I presented up thread. For me a custodian to custodian transfer would be my last choice. I would rather pay a small penalty than go through that gauntlet.
I’ll give you that “IRA” and “CD” are two very different things that loose a lot of the distinctions when talking about a IRA CD held at a bank (where the CD is the IRA account, and the IRA account is the CD). You cant do a simple transfer since the CD isnt transferable, but liquidating the CD investment inherently liquidates and closes the IRA altogether. And a lot of local branch-type employees only understand what they’ve been trained by that bank (and the bank wants you to keep your money there, thus has no incentive to make it easy). It’s not right (you could be really screwed if you have 2 CDs maturing within 12 months), but I can see how it can be challenging to deal with.
It’s a different experience when using brokers, where there are much clearer separation between the investments the IRA holds and the IRA account itself. It’s usually a pretty simple form, and they take care of transferring whatever assets you tell them to transfer.
Understood. I spoke with my bank. They will not allow me to use the simple FBO check approach. They say I must do the formal custodian to custodian transfer.
So that is what I will do. Spoke with NFCU. They allow you to open an “IRA savings account”, which is permitted to persist for up to 90 days with a zero balance. Once that is opened I will file forms asking them to do a custodian to custodian transfer into IRA savings for a whopping fifty dollars, or maybe another few bucks for the savings. And finally thereafter I will be able to open my IRA add-on CD at 3% APY.
Let’s face it, add-on CDs are what is happening today, IRA or otherwise. I will have the privilege of collecting 3% APY on my IRA nestegg for the next 37 months, without the obligation ever to have to add another dime to the account should rates rise (fat chance). This strikes me as a screaming no-brainer.
It’ll probably be worse than pulling teeth. But I’d check with your current bank to see if they could open the same “IRA savings” account as well. Then you could have the bank withdraw the $50 from your CD (or start paying out the monthly interest to that savings account, and avoid any early withdrawal penalty?) in advance of NFCU processing the transfer. I’d just be concerned of potential issues when they get that $50 transfer request against a $XX,000 CD, like if they break the entire CD rather than just withdraw the amount requested, or something like that. No clue how that’s typically handled, and it’ll be very specific to each institution, but it’s a potential pitfall to consider nonetheless.
I have spoken with the bank where I have my existing IRA CD. Fortunately it is a “local” bank and I know the rep there and have spoken with her in person. She assures me the $50 will come out of interest already earned on my IRA CD, so there will be no penalty and no closure of the CD.
But your point is well taken. Possible pitfalls of an early withdrawal like this need to be investigated on a case by case basis. Not all financial institutions have the same rules on such withdrawals as this, that is for certain.
With a couple 3.25% CDs maturing in December, I assumed I would take a hit on that money going forward. So I’m glad I was able to roll them into Keelser at 3.2% for another 2.5 years.
I think there’s a bit of uncertainty right now. I think if the Fed drops rates another 1/4 point, 3%+ CDs will disappear. But no one is convinced they will take that next step down.
Interesting. I would have guessed you had add-on accounts lined up to take care of this.
I’m at present operating add-ons at GTE, Freedom CU, PSECU, and NFCU . . . . and of course working on the IRA add-on at NFCU, too, as documented up thread.
And there were at least a couple of other add-on opportunities available in the past which I do not have . . . . surely wish I did.
Ok, yeah I do have a GTE add-on in my back pocket. But I only want to put so much into it, and was hoping to keep it for money maturing later next year (when there’s a decent risk that rates will be even lower than now). I know I should have put more add-ons in place proactively, but what can I say…
