IRA CD Early withdrawal penalty for breaking CD | Ed Slott and Company, LLC

IRA CD Early withdrawal penalty for breaking CD

Considering breaking 5 year IRA CD before maturity to get a better rate at another institution. Will have an EWP from the bank but no IRS penalty as over 59.5. Is there any way to deduct the EWP penalty from AGI as there would be for a non IRA CD? Does doing the rollover and holding proceeds in a taxable account for 60 days help rather than a direct transfer to the new institution help? Thanks.

You cannot deduct the EWP for a CD in an IRA.  And even if the bank would cooperate with a plan to distribute the IRA CD as a taxable non IRA CD, then do the early withdrawal so that the CD was in a taxable account at the time and you could deduct the EWP, you could not complete the 60 day rollover because when you distribute a non cash holding from an IRA, in order to do a 60 day rollover, you must roll over the same property you distributed (the CD). That would not be possible since the CD will no longer exist after being cashed out. So that would not work, even if the bank agreed to the in kind distribution. But it might work if you settled for a taxable distribution instead of a rollover because you needed to take an IRA distribution anyway.

 

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