In your post, you are using a few terms that are confusing to me.

Here is where I am having difficulty;

1) You said "If you have a Retirement CD - IRA, SEP, Keogh".

2) You said "once you hit 59 1/2 you can change your account once a year."

3) Your second paragraph mentions specifics that are not applicable in all cases.



1) By this do you mean a CD held INSIDE an IRA account? Or are you using the term "Retirement CD" to refer to a long term CD?

It should be made clear that an IRA, a ROTH IRA, a SEP (Simplified Employee Pension, often called a "SEP IRA" ) and a Keogh Plan are simply ACCOUNTS and not the investment or invested security itself. They are completely separate. You can keep a cash balance in an IRA. It doesn't have to be invested in anything.

It may be the case that your local bank will offer IRA account services and ONLY offer CD's as an investment option, but the two are completely different entities. The only reason your bank may offer only CD's would be because they are not a registered securities dealer. If that is the case, you may want to seriously consider looking for a bank that DOES have that designation and can then offer a wider array of investment options.

2) This has me scratching my head. Do you mean that you can change the CD once a year? Or change the entire account?
There are absolutely no restrictions on making trades or changes of investments (with the exception of the use of Margin account procedures) in the IRS code regarding these types of accounts. You don't have to wait until you are 59 and a half before you are allowed to buy or sell ANY security, including CD's inside an IRA, and there are no restrictions on how many such changes you make during a calender year.

3) " I know that I can change my CD for a different one without penalty even if it is not due once a year" This is not always the case, as it depends on the type of CD. Some CD's are "Brokered CD's" and they can be bought and sold at will with no penalty at all. However, as a general rule, a CD is what's known as a "Time Deposit" as opposed to a "Demand Deposit" account. The bank or other financial institution who issued the CD has the right to place restrictions on early surrender because it is basically a contract between you and the bank. They give you a higher interest rate than they do on regular savings accounts because you agree to leave the money in place for a specific length of time. Generally however, the penalty amounts to a month or two (and up to 6, depending on the term of the note) months of interest and little more. At today's rates, that isn't really very much on a $1000.00 CD. The primary advantage to holding ANY security inside a tax deferred account is that you don't have to pay taxes on gains on an annual basis. This includes dividends, capital gains and interest payments, be they from bonds or CD's.


If you have an IRA at a bank and they are telling you that you can not make changes to your IRA account holdings before you are 59 1/2, they are LYING to you.

All this can be solved with the simple process of "Laddering". This allows the constant repurchase of a new CD periodically to take advantage of rates as they rise. If you have $12,000 for instance, you can ladder your CD's so that one is maturing each month. You take the settled proceeds and buy another CD out at the end of the ladder.

In this case I just meant you can changes the terms of the CD without paying penalties, and although I am far from a financial expert, every time I tell people about this they doubt me, so I figure many people are not aware of the ability to change terms without a financial penalty. I do it. Yes it is the regular ordinary bank CD.

I told my sister, the CPA, in another state and she told me it was not true, until she went to her bank and did it herself. I have told many friends about this, they tend to doubt it, until they do it themselves. I have never been the best investor or a financial person, but I find this useful.

The idea is not to get money out but to wring the best interest out of the account. If you can get the most in a 6 year timed deposit, but you are afraid the rate will go up in a year, I buy that higher account and if it goes up, I just have them change the CD. as if I took the money out and deposited it again - no penalty as long as I leave it in the same bank. I recently changed accounts between banks because I started to hate the bank where I had the money, I had to wait for the term to come to an end to take the money out without penalty. I have been reinvesting my IRA and Keough CDs, but have the interest from the accounts withdrawn from the IRA into my checking accounts to pay bills, this income is my taxable withdrawal for the year.

I found a link with people discussing this, they say it is on a bank by bank rule, but my banker said it was everywhere, so I always tell people to check with their bank before believing me, so far I have not found a bank that does not allow you to rolll the money over into another account, and my banks have gone through massive buy outs and now are among the largest ones. Of course this does not hold for the savings CD i have left.

http://www.bogleheads.org/forum/viewtopic.php?t=24550

Please let me know if this is more clear now or if you have found this is no longer true.

I have been, for a very long time on this board, a stickler for accuracy in terminology with regard to these matters. It means something when you say, as an example, "I Invest in my IRA" or you say "I have investments inside my IRA". These two statements indicate a different understanding of method and definitions. The first statement is both incomplete and/or inaccurate and the second isn't. Follow?

Please, PLEASE do not take anything I write as condescending. What you are about to read may come off to you as me being so, but I promise, that is not my intent. If we were sitting across your dining room table from one another, you would be able to see my face and know that I am being sincere and have nothing but your financial well being at heart.

OK?

It is clear to me that the application of much of what you wrote regards individuals OLDER than 59 1/2 and are therefore eligible to withdraw funds from an IRA in the normal way, ie; as these accounts are designed to facilitate when one turns 60 or so years old.

I have found the best way to dissect a post is to do the excerpt quote thing, take each point and respond. So ....

I'll start with your title line;

Sometimes the "penalty" is merely a fee or a commission. Sometimes there is no penalty or fee at all, as I said in my previous post. If we are talking about brokered CD's, the most you'll have is a small commission for the sale and buy. When I was trading, the fees charged on trading CD's was so small - as in zero in most cases - that it gets lost in your annual IRA maintenance fees.


No, you can't. The individual purchaser can not change the "terms" of a Certificate of Deposit. They are what they are and you agree with them when you sign the contract. There are exceptions, of course, but for the most part, a CD is what it is.


I do not doubt that you are being honest and sincere. What I doubt is the mechanics of what is actually going on.


Absolutely spot on. That should be the intent of anyone saving for retirement. Get the best return on their money they can, given their individual tolerance for risk.



In the first sentence, you used to word "account" incorrectly. What you buy is the higher yield CD, not "account". Again, terminology matters. A CD is an "Asset" for the purposes of its place inside your IRA and a "Contract" for the purposes of your agreement with your bank. What you are describing sounds like what is known as a "Rolling CD" or a Constant Maturity or "Callable CD" and may go by many other names, but the fact is, all of this would be spelled out in the original document you signed when you bought it initially. I don't doubt for one second that your bank and many others offer CD programs (for lack of a better term) that will allow the client to change to a higher yield when it comes available with no penalty. But the fact is, it is still a time deposit. You can't "change terms" by walking into your bank 13 months into owning a 5 year CD and say "I want 3% on 2 years" when the CD you bought is 5 years and the current rate is 1%. If, during the course of owning that CD, the rates rise from 1% to 1.5%, I see it as completely possible if not likely, that your agreement with the bank would allow for a change before maturity with no penalty, PROVIDING the bank offers such an option. If they do, then great! And sure, not paying a penalty in this case would be expected because you are leaving the money where it is, at YOUR BANK!


This backs up what I described above.


This indicates to me that you are indeed older than 60 and are taking normal, penalty free withdrawals from your IRA's. No problem, great, wonderful, it's good that you are able to do this.



I'll get to the link in a sec, but as far as the second part...AHA! Right! In your savings you have regular, run of the mill CD's that if you withdraw early, you will be subject to penalties.

Your link is a conversation that took place in 2008. That's fine, but it is between people who are not clear on terminology either. But that's OK...I get the gist.

It seems what they are discussing is the withdrawal of PRINCIPAL on accounts containing CD's well in excess of minimum deposit amounts. For the most part, CD's, like Bonds, have a "Par Value" of $1000.00. They mature at that amount. You give them a grand and over time they pay you interest. At the end of the term, you get your grand back. The discussion at the link leads me to believe they are talking about taking distributions from the principal, ie: the initial money put in, which is YOUR money, no matter what, and the bank is OK with that. What they don't say is whether or not there is an annual limit or a minimum balance. I can completely understand that a bank would allow withdrawals of principal from an IRA that had say...$100,000 in CD's. I get it.

The money you put in a CD is YOURS and the bank can not keep any of it from you at any time for any reason, REGARDLESS of the type of account it is held in. If it is held in an IRA and you are older than 59 1/2, you can take out as much as you want, you just have to pay income taxes on it. As I said above, the MOST a bank will penalize you is a few months of interest. They can NOT however, keep any of the principal. If you give a bank 10 grand and buy a CD, and ten days later want your ten grand back, they will give you ten thousand dollars. THEY HAVE TO. What they don't have to give you is any interest accrued in that short of a time, pursuant to the agreement you signed.

There are some other ins and outs regarding the conversation on your link that aren't addressed, like annual contribution limits of IRA's, ages of the individuals involved, RMD's ("Required Minimum Distributions&quot for those over 70 1/2 and a few other points, but that is not really applicable here.

I understand the point you are trying to convey to your (our) readers, but I strongly feel it is important to be clear. I trust you would agree.

I hope what I have written wasn't a distraction.

All the best.

As I said I am not a financial person, I was always a technical person forced to work in management no matter how many times I changed jobs, I would get promoted to management because of my pleasant accepting and non-threatening nature.

Here is what I have


Long term investments in stable stocks, Keogh basic fixed interest bank CD, IRA in fixed interest bank CD, one 401 K invested in bonds.

I invest in a savings bank that is well rated and stable and a commercial bank CD I am not happy with their changing of rules constantly.

On the Keogh and IRA CDs, they were bought at a time of rising rates, I bought them for 6 years, the interest rates went up, the banks (multiple) encouraged me to close the particular CDs before their maturity date and use that money to purchase new ones at a higher rate of interest. I have not done this for a few years since interest rates went down. Sadly some are now coming due with low rates available. I have talked to the bank manager and she assured me that I could still take out a 6 year Cd - best rate - Which I can close before maturity without any penalty and reopen at a higher rate at most once a year. Since I was encouraged to do that by a bank manager at one bank and other managers seem agreeable to it, I assume it is legal and at one point I did find a description of that in a bank web site but do not remember which one it was.

I think it is worth trying to get people to maximize their interest rates and wanted to share this experience here, but as always check with your bank first. My bank manager said it was a federal law but did not tell me which one. Could just be ERISA, don't know.

The ERISA regulation does not seem to apply, because it has to do with defined benefit plans, while IRA's, SEP's 401(k)'s and Keogh's are defined contribution plans.

Nothing you have written is, as far as I can tell, remotely illegal.

I do not find it unusual at all that your bank manager suggested a 6 year note that can be surrendered once annually for a higher yield note.

Seems she or he wants to keep their customers happy. No problems.

That is absolutely correct and this is the perfect place for it. I am sure the audience appreciates your contribution. The only reason I responded was because I was confused by your use of terms.


Again, all the best.

It may be on the back of the form you should have had to sign when you renewed them. If not, get it in writing. I know I did.

Many people at this same credit union told me they've never heard of this "rule" that was in place when I renewed them at 2.76%. However, it is indeed true and I have it in writing via a personal letter I received from the head of the credit union. I printed this out and have it locked up in my safety deposit box for safe-keeping as no, I do not trust these people, none of them one tiny little bit.

Its a dog eat dog world out there and when I call them on the phone, I'd guess that about 90%++ of the people that answer calls have no idea what I am talking about with respect to being able to purchase another IRA CD at a higher rate without any penalty should rates go up and I am 59-1/2 years of age.

As you mention these "rules" are indeed ever changing and that is exactly why you should get this in writing! I cannot emphasize this enough!!

Best of luck.

The rate is 2.76%.

Normally, I would never tie up my IRA at such a low rate for so long BUT, my credit union will allow me to (once I hit 59-1/2 which is not that far off) to buy a new CD without any penalty at all as long as I leave $1,000.00 in the original CD bought at 2.76%.

I have three CDs at this rate that I am now holding.

I've got five more years that I can hold them at this rate should I decide to do so which I may or may not do depending upon what life hands me within the next few years which is totally unpredictable given my very poor health.

Best of luck with your IRA investments.

best I could do last year was 1,75% and had to open a checking account to get the intro rate.

The place I bank with has 2.02% right now but it's a 7-year hitch with a 1-year penalty. So, no thank you!

You'd be better off tying it up into something with a 2 or 3 mos. penalty and hope that rates go up soon I'd think.

Still 1.75% is not bad ... considering!

It angers me as it seems those that cannot invest their money (like myself) can't do better than a lowly 2.76% on an IRA CD with such a long term!

As for your other investments, I hope they do well for you, well enough to offset what you should be getting for the IRA!