A Reader Asks #16: A Countrywide IRA

It has been a while since I have answered reader questions. I recently received this email:

I have an IRA with Countrywide. Bank of America has purchased Countrywide.

If I do not want to be a Bank of America customer does the "law" allow me to withdraw my IRA from Bank of America without Bank of America penalizing me for an early withdrawal?

Ah yes, remember Countrywide? That was the "crisis" several months ago before Lehman Brothers, AIG, Freddie, and Fannie. You remember. When life was simple? You are correct. Countrywide was taken over by Bank of America and, for whatever reason, you do not want to be their customer but you do face two potential obstacles.

First, since this is an IRA the federal tax code (I assume this is the "law" you referenced) imposes some fairly severe penalties for accessing your money if you are younger than age 59 ½. Fortunately, this is a pretty easy obstacle to work around. If you transfer your IRA directly to another IRA, the distribution from the old IRA is neither taxable nor does a penalty apply. Your new IRA provider should be quite familiar with a direct transfer and will take care of all the details. You simply sign a direct transfer form, sit back, and let them take care of the details. Of course if you are older than 59 ½, the penalty is no longer an issue but a direct transfer is still your best method of avoiding current income tax.

The bigger potential problem is this particular situation could be the current IRA product. Is it an annuity, mutual fund, certificate of deposit (CD), or a simple savings account? An IRA could be any of these and possibly something else. While a direct transfer avoids current income tax and tax penalties, it does not excuse any charges imposed by the product itself for a premature distribution. The only way to know if your account is subject to a charge is to ask. Just call Bank of America and tell them you are considering a direct transfer for your IRA. Ask them if there are any charges or penalties imposed by your current IRA product. If there are, find out what the charges are, how they are calculated, and how long they last. For example, CD's often require that you forfeit 3 or 6 months of interest. Annuities often have surrender charges which may be imposed from 0 to 10+ years and are a percentage of the balance. Mutual funds may, or may not, have back end sales charges. Savings accounts are usually readily accessible.

Even if you product imposes a cost this just may be the best time to pull the trigger on a change. If your account is exposed to the markets then your balance may be at a low. If your charge for closing your account is a percentage of the balance, the charge is down now too.

Without knowing the specifics of your account I cannot give a specific recommendation, but I hope I have given you enough of a background to help you make your best decision. Just weigh the cost of making a direct transfer (if any) against the reason you do not want to be a Bank of America customer.

Is there a financial topic you have a question about? Or is there something you have always wanted to know but were afraid to ask? This is your opportunity! Send me an email and ask your question. I will publish the answer here at the blog and promise to keep your identity confidential. No cost. No obligation. No strings attached.

mail by chona kasinger

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