Gold 401K

So you’ve got an IRA CD coming do and your bank is offering awful roll rates (like 1.00%). You’ve found another bank offering a 15-month IRA CD at 2.00%. What is the best way to go about transferring your IRA?

There are two methods for transferring an IRA. One is to take possession of the funds and send them yourself to the new institution. The second is doing a trustee-to-trustee transfer. Both have positives and negatives.

Method one:

First have the bank where your funds are coming do send you the funds from your IRA when it matures. Some banks will wire those funds to you, but most mail you a check. This method usually takes less time then method two, but a few problems can occur. First, the sending bank could hold pack a portion, sometimes up to 20%, in case taxes end up being owed. Second, when you go this route, you can only do it once a year and the funds have to be re-invested into a new IRA within 60-days. This isn’t usually a problem when you have a new IRA already set-up and waiting, but the once a year limit can pose serious problems, especially for people that have multiple IRA CDs. If the funds aren’t re-invested you will at the least have to pay taxes on the amount and depending on your age there may also be penalties (if you are under 59 1/2, for example). And even though it is rare, even if you do everything right, you still may find yourself in a position where you have to prove you did everything right. This can be a lengthy process with filing forms and evidence with the IRS.

Method two:

This method is really the preferred choice, but it can take a little bit longer. This is called a trustee-to-trustee transfer or direct rollover. The current holder (or trustee) of your IRA sends the money directly to the new institution (new trustee). This is the safest route to avoid the potential problems of the above, but it isn’t without faults. First, this can take up to a month depending on the process that the current trustee has. The most common process is to complete a transfer form from the new trustee. This form usually has to be notarized or gold medallion signature guaranteed. Anyone that is a licensed notary can handle the notary, but usually only another financial institution can do the gold medallion. This usually costs about $20.00. Once that is done you mail the form to the new trustee. They sign the form and add the delivery instructions. Next, the new trustee mails the form to the current one. Finally, the current trustee mails or wires the funds. This method means you never take position of the funds. Plus, it can be done as many times as you want during the year without wearing about creating a taxable event. You do have to predetermine where you want the funds sent and the new institutions needs to be able to give you some time to get them the funds.

We usually recommend method two and just see far fewer problems with it. Occasionally time is of the essence and method one is necessary. One hybrid method is to have the current trustee send you the funds, but have the check made out to the new trustee for your benefit.

Chris Duncan is a FINRA Registered Representative. He works for Jumbo CD Investments, a leading CD research and placement firm. He specializes in helping clients find the highest CD rates nationwide. His clients include individuals, financial institutions, corporations, and public agencies. Visit us at IRA CD Rates.

Am I wrong about price action (Also IRA rollover)