Topic: Individual Retirement Accounts (IRAs)
-
One of our customers died, leaving a savings account and a CD listing her daughter as the beneficiary. She also had an IRA listing another daughter as the beneficiary. All of the beneficiary designations use the daughters’ maiden names, but both daughters have since married. Now, their driver’s licenses show their married names, but their social security cards show their maiden names. If they present marriage certificates showing both their maiden names and married names, can we distribute the accounts to them?
—
by
Yes, you may distribute the accounts once the beneficiaries provide their marriage certificates, although your institution has the right to withhold distributions until you are satisfied that they have provided adequate identification. We believe it is up to your institution to determine what constitutes adequate identification. Other than what is required by your account agreements,…
-
Is it possible to make a secured loan using a CD held in an individual retirement account (IRA) as collateral?
—
by
No, you may not use a CD held in an IRA as collateral for a loan. IRS Publication 590 notes that using an IRA as security for a loan is a prohibited transaction. For resources related to our guidance, please see: IRS Publication 590 (Prohibited Transactions for an IRA include “using it as security for…
-
We qualify for the alternative delivery method for our annual privacy notices. How should we notify CD and loan customers about the availability of the privacy notice, since we do not send those customers periodic statements or coupon books?
—
by
For any customers who do not receive periodic statements or other notices from your institution at least annually, you must provide a full annual privacy notice once per year — you cannot rely on the alternative delivery method for those customers. The alternative delivery method requirements include a requirement to provide a “notice of availability”…
-
Due to human error, we did not send out the required minimum distribution notice to several of our IRA customers. What are the penalties, and what is our potential liability to the account holders?
—
by
The penalty that applies to an IRA trustee or custodian for failing to provide a required minimum distribution (RMD) notice, as required by IRS Notice 2002-27, is “$50 for each failure unless it is shown that such failure is due to reasonable cause.” 26 USC 6693(a)(1). If the IRA account holders did not withdraw all…
-
Should CDs and IRAs ever go into dormancy status?
—
by
The timing and application of your bank’s dormancy policy to certificates of deposit (CDs) and Individual Retirement Accounts (IRAs) is a decision for your institution. Of course, these types of accounts must be reported to the State Treasurer once they are deemed abandoned under the Uniform Disposition of Unclaimed Property Act [Repealed effective 1/1/18]. The specific…
-
Does Illinois law require a spouse’s signature on the designation of beneficiary form if the spouse is not a beneficiary of the IRA? What about withdrawals?
—
by
We are not aware of any Illinois laws that would require spousal consent for designating an IRA beneficiary that is not the owner’s spouse or for IRA withdrawals. Spousal consent for an IRA is often required in community property states. Because those states automatically grant a property interest in the IRA to the owner’s spouse,…
-
When an IRA has early withdrawals that are subject to the 10% penalty tax, and we withdraw additional money from the IRA to cover the 10% taxes, would those withholding amounts also be subject to the 10% penalty tax?
—
by
We believe that any amounts distributed from the IRA, including amounts distributed to cover taxes, are subject to the 10% penalty tax (unless an exception applies). See IRS Publication 590-B, Distributioins from Individual Retirement Arrangements (IRAs) (“Generally, if you are under age 59½, you must pay a 10% additional tax on the distribution of any…
-
How should we title an IRA account when the owner is deceased and the beneficiary now owns the account? The beneficiary is not a spouse.
—
by
You should always first review your bank’s policies and procedures to determine how to title an account. If you do not have a procedure, then you may wish to title a non-spouse beneficiary IRA account as Jane Doe, Beneficiary Joe Smith IRA with Jane Doe’s social security number.