IRA question

[rosarugosa]

This is probably a dumb question, but here goes. My Mom has a small IRA with a local bank. She's 79, so has been required to take small RMDs for several years now. She told me that the bank said this year she would have to take the whole thing. That doesn't really make sense to me. She tends to invest in CDs, so I'm thinking maybe they mean the IRA is invested in a CD which has reached its maturity, bu then I would assume she could somehow reinvest. Does anyone have any insight?

[Teacher Terry]

That does sound wrong-I did not think there was a age for an IRA to be empty but just for withdrawals. It sounds like something else is going on.

[rosarugosa]

Thanks, Terry. That's what I thought too.

[jp1]

Maybe the bank has a limit for how small they will let it get before they close the account?

[lmerullo]

I am not sure what the answer is for your mom - but she or you could ask more questions at the bank.

For my mom, she also had a similar situation. The CD she used was coming due and the bank no longer offered that type. Mom had to go in and close the CD account, select a new CD type (rate and maturity date) and open a new CD... she ended up taking out some of the money, and rolling two into one. My mom is 89, and she didn't want to go for the 5 year term, in case she died and we HAD TO WAIT FOR THE FIVE YEARS TO INHERIT! Oy, moms are so funny! BTW, there was no tax implication to her transaction.

[Spartana]

Rugarosa - My understanding is that your Mom may have to up the amount she withdraws each year (a higher withdrawal rate) but she shouldn't have to take it all out at once. It's probably like Imerullo said - the bank no longer offers that particular IRA CD so she has to roll it over into a different type of bank IRA account. Many banks have just a basic IRA saving kind of account that doesn't have term limits (but pays very low interest). I used my credit unions IRA saving account when I wanted to consolidate all my various IRA CD accounts from different banks all over the country into one account. So each time one of those accounts matured, I'd roll it over into my credit unions IRA savings account and, once all the old IRA CDs where in that account, then I put that money into one IRA CD account with a term limit. In any case your Mom may have to roll over her IRA into a different IRA account, but shouldn't ever have to withdraw the full amount and shouldn't have to pay taxes on it if she rolls it over.

Imerullo - FYI, if your Mom passes away with an IRA CD (or maybe any kind of traditional IRA) then the bank often takes it out of the CD even if it hasn't matured yet and puts it into a new type of holding account that they will then transfer to you as a beneficiary once all the proper paperwork is filed. They do not charge a penalty to take the money out before it reaches maturity (as you can't keep it in that CD account anyways) and the government doesn't charge an early withdrawal penalty when you receive those funds either even if you are younger than 59 1/2. So you wouldn't have to wait 5 years or whatever to maturity to get the IRA CD. But while there are no early withdrawal penalties on the account as a beneficiary, you will have to pay income taxes on it unless it's in a Roth IRA. And you'll generally have to pay it on the whole lump sum as only spouses can roll over traditional IRA's when someone dies. There is a way to get it paid out over time based on your age, but you will have to begin getting payments (and pay income tax on that amount) since you can't roll it over tax free - only a spouse can do that. I learned that the hard way when my Mom passed away and I had to pay income taxes on the lump sum distribution of her traditional IRA CD - although I was not charged an early withdrawal penalty even though I was in my 40's, and the bank didn't charge me any penalty for closing the account before maturity.

[rosarugosa]

Thanks for the feedback. I knew it didn't sound right, so we will definitely have to ask some questions.

[lmerullo]

Yes, Spartana, thank you for spelling it out clearly... I was aware of the rules for inheriting - it was my dear old mom who was not. And, being a good steward she was trying to ensure her "loose ends" are all tied up properly before she passes.