If your bank drops interest rates below acceptable levels or you find a better deal elsewhere, it’s time to transfer your IRA CD to another bank. You need to be careful during this process. If you request funds from your old IRA and hold them longer than 60 days, you’re going to pay income taxes on the money as well as a 10 percent penalty for early withdrawal if you’re under age 59 ½. Luckily, avoiding this penalty is easy once you understand IRA transfer rules.
Read your bank statement to find the date your CD comes due. Closing your CD before the due date will usually cost you 90 to 180 days of interest, as well as potential early-withdrawal penalties. Unless the CD due date is far in the future and there is a huge difference between your current rate and new rate, it probably makes better sense to wait until your CD comes due before transferring your IRA.
Shop for IRA CD rates by visiting online sites that aggregate rates from many banks into one place. Sites such as Bankrate.com let you know what interest rate you can expect from many different sources without having to drive all over town or spend all day on the phone calling banks. Don’t just shop interest rates. Stick with banks that have familiar names and use Bankrate.com’s bank rating system to verify that your potential new bank isn’t in financial hot water.
Contact the bank you wish to work with and request transfer forms. Bankers at your new institution should be very happy to help you facilitate the transfer of your old IRA CD to their bank. Ask the bank for forms so you never have to touch the funds. If you get the money in your hands, you’ll probably have taxes withheld and have a time limit of 60 days to reinvest the money in your new IRA CD.
Complete transfer forms and monitor the process. Your IRA CD transfer shouldn’t take longer than a month, unless you signed forms allowing the transfer to occur in the future, once the CD due date arrives. If the process seems to be dragging on, call your new bank and find out what you can do to speed up the process.
Fill out your tax forms correctly to complete your transfer. If you didn’t touch the money, you’re in luck: there are no tax forms to fill out. However, if the money came to you and then was reinvested within 60 days, you’ll receive a 1099-R from your old IRA CD trustee. Write the total amount of the distribution on line 15a of Form 1040, or line 11a if you file Form 1040A. If the total amount was rolled over, enter “0” on Form 1040, line 15b, or Form 1040A, line 11b. If you kept some money, enter the taxable portion on line 15b, Form 1040 or line 11b of Form 1040A. Write “Rollover” next to Form 1040, line 15b, or Form 1040A, line 11b.
As a former financial advisor to companies and individuals for 16 years, Joe Andrews knows financial planning and marketing from start-ups to personal budgets. He also writes on motor racing, board games and travel. Andrews received his B.A. from Michigan State University in English. He is currently working on a young adult novel.