24 Dec Can I move my IRA without a penalty?

Q. I am receiving mixed messages regarding transfers between retirement accounts for those over the age of 59 ½. One financial institution states that retirement funds can be transferred to another financial institution regardless of the maturity date on a CD and there is no penalty for closing the CD for that purpose. The representative told me that this is a federal regulation on retirement accounts and not a bank policy. Another financial institution states that retirement funds can be transferred to another financial institution but there is a penalty for closing the CD for transfer before its maturity date. They claim that the federal regulation of no penalty only applies to withdrawal of funds as a distribution with no penalty after the age of 59 ½. I am planning to close retirement accounts at both of these financial institutions and transfer funds to another financial institution for my retirement accounts. What is the correct regulation regarding transfer of funds in retirement accounts? Is there a penalty for early closure of a retirement CD when it is a transfer and not a distribution?
— Annoyed

A. We hate a runaround.

A Certificate of Deposit (CD) is an arrangement, or contract, between an individual and a financial institution, usually a bank.

The depositor agrees to give up the use of the money for a stipulated amount of time, said said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

The bank agrees to pay the depositor a certain amount of annual in interest for the agreed upon time period, he said.

“What most people don’t understand is that with a CD, the financial institution’s representative receives a commission on the transaction,” he said. “The longer the life of the CD, the larger the representative’s commission will be.”

The commission is nonrefundable, Kiely said. This means if you cancel the CD early, the sales person does not forfeit any of the commission.

This is where early withdrawal penalties come from.

If you cancel a CD before the maturity date you pay a penalty to compensate the institution for the commission, they paid the sales person, he said.

“If you purchase a CD in an IRA when you are over age 73 and are required to take annual Required Minimum Distributions (RMDs), then the bank is entering into a questionable contract,” he said. “They are entering into a contract where they know you will have to break the CD early in order to take your RMD. That is probably why they don’t charge a penalty when the CD is cancelled. The bank and their salesperson probably also have a similar agreement.”

If you are not old enough to begin taking RMDs and buy a CD, the bank has reason to believe you will keep your part of the agreement and keep the CD until maturity, he said.

“If you move your account — resulting in an early termination of the CD — I see no reason why the bank should not charge you the early surrender penalty,” Kiely said.

Your other option is to wait until the CD comes due, and make the change then to avoid the penalty.

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This story was originally published in December 2025.

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