Once seven days have passed after your customer first opens the IRA CD account, you may charge an early withdrawal penalty if permitted by your account agreement and disclosures. We are not aware of any IRS regulation that would prohibit you from charging an early withdrawal fee (after seven days have passed) when the CD is held in an IRA account. 

IRS regulations prohibit you from charging an early withdrawal penalty within the first seven days after a customer establishes an IRA with your institution. After that seven day period, Regulation D permits you (but does not require you) to waive early withdrawal penalties after the owner reaches the age of 59½. 

If your institution will be penalizing withdrawals that occur after the first seven days, we recommend reviewing your account agreements and disclosures to confirm that you have not agreed to waive withdrawal penalties for IRAs. Some account agreements provide that early withdrawal penalties for CDs will be waived after the owner reaches the age of 59½ (after which an IRA owner may withdraw funds without incurring IRS penalties) or the age of 70½ (after which an IRA owner must begin withdrawing funds). 

For resources related to our guidance, please see:

• IRS Regulations, 26 CFR 1.408-6(d)(4)(ii)(A)(2) (An IRA owner must be “permitted to revoke the account . . . by mailing or delivering, at his option, a notice of revocation on or before a day not less than seven days after the earlier of the date of establishment or purchase and, upon revocation, is entitled to a return of the entire amount of the consideration paid by him for the account . . . without adjustment for such items as sales commissions, administrative expenses or fluctuation in market value. . . .”)

• Regulation D, 12 CFR 204.2, note 1(a) (“A time deposit, or a portion thereof, may be paid during the period when an early withdrawal penalty would otherwise be required under this part without imposing an early withdrawal penalty specified by this part: (a) Where the time deposit is maintained in an individual retirement account pursuant to 26 CFR 1.408-6(d)(4) . . . Provided that the depositor forfeits an amount at least equal to the simple interest earned on the amount withdrawn.”)

• Regulation D, 12 CFR 204.2, note 1(b) (“A time deposit, or a portion thereof, may be paid during the period when an early withdrawal penalty would otherwise be required under this part without imposing an early withdrawal penalty specified by this part: . . . (b) Where the depository institution pays all or a portion of a time deposit representing funds contributed to an individual retirement account . . . when the individual for whose benefit the account is maintained attains age 59½ . . . .”)

• IRS Publication 590b, Age 59½ Rule (“After you reach age 59½, you can receive distributions without having to pay the 10% additional tax. Even though you can receive distributions after you reach age 59½, distributions are not required until you reach age 70½.”)