Ally bank would not allow me to take monthly interest from my CD IRA and move to ANOTHER ALLY savings IRA

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drcwks
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Ally bank would not allow me to take monthly interest from my CD IRA and move to ANOTHER ALLY savings IRA

Post by drcwks »

Ally bank would not allow me to take monthly interest from my CD IRA and move to ANOTHER ALLY savings IRA.

I have a 12 month CD @ 4.5% and want to transfer montly interest to my savings IRA so I don't generate a 1099R at the end of the year
and that way I can decide how much to take out for distribution if I need to.

Is this an ALLY BANK rule or an IRS Tax rule?

I had already talked earlier to an ALLY IRA side and wanted to transfer the interest to the ALLY INVEST side in a self directed IRA. He said that was okay. I'm waiting on forms since he said this situation is not used very often so no forms available online so I'm waiting for an email with the form.

I hope the 2nd scenario above works. That way even if my investing cash sits in a MM account I can still take a distribution of MY choosing when needed.

Main question is. Is this an ALLY BANK rule or an IRS tax rule? In my opinion it's like a custodian-to-custodian type transfer.

Thanks in advance
drcwks
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arcticpineapplecorp.
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Re: Ally bank would not allow me to take monthly interest from my CD IRA and move to ANOTHER ALLY savings IRA

Post by arcticpineapplecorp. »

drcwks wrote: Fri Jun 07, 2024 4:30 pm Ally bank would not allow me to take monthly interest from my CD IRA and move to ANOTHER ALLY savings IRA.

I have a 12 month CD @ 4.5% and want to transfer montly interest to my savings IRA so I don't generate a 1099R at the end of the year
and that way I can decide how much to take out for distribution if I need to.
don't know if it's Ally or IRS but...

Do you mean you don't want to generate a 1099-INT (rather than your stated 1099-R)?

Interest paid from a CD (if not an IRA CD) generates a 1099-INT. Period. (unless the interest is reinvested in the CD prior to maturity).

Taking interest from a CD (not an IRA CD) and putting it in an IRA won't avoid getting a 1099-INT, because interest was paid so 1099-INT follows.

Also what do you mean by "savings IRA"? What is a savings IRA other than you have an IRA with money sitting in a settlement fund or money market account (inside the IRA)?
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WonderWander
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Re: Ally bank would not allow me to take monthly interest from my CD IRA and move to ANOTHER ALLY savings IRA

Post by WonderWander »

From the internet:
The interest earned in a CD is usually compounded and paid to the account, generally daily or monthly, and you receive it all when the CD term ends. (Or you can choose to receive regular interest payments if the bank allows it.)

My experience has always been that the interest is paid at the end of the CD term. But I’ve never asked the bank if it’s possible to access the interest payments earlier so maybe you can depending on the bank/CD issuer.
gammalaser
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Re: Ally bank would not allow me to take monthly interest from my CD IRA and move to ANOTHER ALLY savings IRA

Post by gammalaser »

arcticpineapplecorp. wrote: Fri Jun 07, 2024 8:39 pm
drcwks wrote: Fri Jun 07, 2024 4:30 pm Ally bank would not allow me to take monthly interest from my CD IRA and move to ANOTHER ALLY savings IRA.

I have a 12 month CD @ 4.5% and want to transfer montly interest to my savings IRA so I don't generate a 1099R at the end of the year
and that way I can decide how much to take out for distribution if I need to.
don't know if it's Ally or IRS but...

Do you mean you don't want to generate a 1099-INT (rather than your stated 1099-R)?

Interest paid from a CD (if not an IRA CD) generates a 1099-INT. Period. (unless the interest is reinvested in the CD prior to maturity).

Taking interest from a CD (not an IRA CD) and putting it in an IRA won't avoid getting a 1099-INT, because interest was paid so 1099-INT follows.

Also what do you mean by "savings IRA"? What is a savings IRA other than you have an IRA with money sitting in a settlement fund or money market account (inside the IRA)?
I think he is referring to different IRA account types at Ally: https://www.ally.com/bank/ira/
And whether Ally Bank allow CD interest from the CD IRA account to be disbursed into their Savings IRA account.

I think this might be an Ally Bank issue. In brokerage based IRA account, you can have different holdings (brokered CD/MMF/etc) inside same IRA account. Maybe at Ally moving money out of the CD IRA also means moving money across accounts. Also some bank CD allow allow the interest to be deposited back into the CD and but allow penalty-free withdrawal of the interest before maturity, but maybe not Ally.

I am not really sure what are the benefits/advantages of using Bank IRA accounts, I think the options there would be very limited :confused
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arcticpineapplecorp.
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Re: Ally bank would not allow me to take monthly interest from my CD IRA and move to ANOTHER ALLY savings IRA

Post by arcticpineapplecorp. »

gammalaser wrote: Fri Jun 07, 2024 9:52 pm I think he is referring to different IRA account types at Ally: https://www.ally.com/bank/ira/
And whether Ally Bank allow CD interest from the CD IRA account to be disbursed into their Savings IRA account.

I think this might be an Ally Bank issue. In brokerage based IRA account, you can have different holdings (brokered CD/MMF/etc) inside same IRA account. Maybe at Ally moving money out of the CD IRA also means moving money across accounts.

I am not really sure what are the benefits/advantages of using Bank IRA accounts, I think the options there would be very limited :confused
ah, sorry, musta missed the first sentence where the OP talks about the CD IRA and went to the second sentence which talks CD but omits use of the word IRA. My bad.

so nevermind about the 1099-INT part. But I still think if he is distributed the interest from the IRA (it leaves the IRA) it is a distribution and would generate a 1099-R regardless of whether he takes that distribution and makes a contribution to a different IRA. I don't see how the OP would avoid a 1099-R for a distribution from an IRA that left the IRA and went elsewhere. Seems like he's asking for it to be a direct transfer without being called a distribution or withdrawal and I don't think it works that way.
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student
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Re: Ally bank would not allow me to take monthly interest from my CD IRA and move to ANOTHER ALLY savings IRA

Post by student »

gammalaser wrote: Fri Jun 07, 2024 9:52 pm
arcticpineapplecorp. wrote: Fri Jun 07, 2024 8:39 pm
drcwks wrote: Fri Jun 07, 2024 4:30 pm Ally bank would not allow me to take monthly interest from my CD IRA and move to ANOTHER ALLY savings IRA.

I have a 12 month CD @ 4.5% and want to transfer montly interest to my savings IRA so I don't generate a 1099R at the end of the year
and that way I can decide how much to take out for distribution if I need to.
don't know if it's Ally or IRS but...

Do you mean you don't want to generate a 1099-INT (rather than your stated 1099-R)?

Interest paid from a CD (if not an IRA CD) generates a 1099-INT. Period. (unless the interest is reinvested in the CD prior to maturity).

Taking interest from a CD (not an IRA CD) and putting it in an IRA won't avoid getting a 1099-INT, because interest was paid so 1099-INT follows.

Also what do you mean by "savings IRA"? What is a savings IRA other than you have an IRA with money sitting in a settlement fund or money market account (inside the IRA)?
I think he is referring to different IRA account types at Ally: https://www.ally.com/bank/ira/
And whether Ally Bank allow CD interest from the CD IRA account to be disbursed into their Savings IRA account.

I think this might be an Ally Bank issue. In brokerage based IRA account, you can have different holdings (brokered CD/MMF/etc) inside same IRA account. Maybe at Ally moving money out of the CD IRA also means moving money across accounts. Also some bank CD allow allow the interest to be deposited back into the CD and but allow penalty-free withdrawal of the interest before maturity, but maybe not Ally.

I am not really sure what are the benefits/advantages of using Bank IRA accounts, I think the options there would be very limited :confused
Same as you. I think this is an Ally Bank issue. My credit union where I used to have an IRA account goes like this. The IRA account is an umbrella account. If I buy a CD, it would be a subaccount. The regular savings will be another subaccount. So there is no issue going from one subaccount to another one.
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celia
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Re: Ally bank would not allow me to take monthly interest from my CD IRA and move to ANOTHER ALLY savings IRA

Post by celia »

drcwks wrote: Fri Jun 07, 2024 4:30 pm Ally bank would not allow me to take monthly interest from my CD IRA and move to ANOTHER ALLY savings IRA.

I have a 12 month CD @ 4.5% and want to transfer montly interest to my savings IRA so I don't generate a 1099R at the end of the year
and that way I can decide how much to take out for distribution if I need to.

Is this an ALLY BANK rule or an IRS Tax rule?

I had already talked earlier to an ALLY IRA side and wanted to transfer the interest to the ALLY INVEST side in a self directed IRA. He said that was okay. I'm waiting on forms since he said this situation is not used very often so no forms available online so I'm waiting for an email with the form.
There are only two kinds of IRAs as far as tax implications go, and that's the Traditional IRA and the Roth IRA. In the Traditional IRA (also just called "IRA" because they came first), taxes are owed when the money is withdrawn and for Roth IRAs, taxes are due when the money is contributed. (The accounts are also known as "pre-tax IRAs" and "post-tax IRAs" although those are not official terms.)

Traditional IRAs also include the SIMPLE IRA and SEP IRA and the Rollover IRA.

There aren't any IRAs known as "CD IRA" or "Savings IRA" although money in the IRA can be invested like the name implies.

The "self-directed IRA" can be either type of IRA. That just means the account owner decides how the money is invested instead of an advisor.

Tax forms for contributions come out on Form 5498 in May each year for the previous tax year and you can just file them away since you likely already filed your taxes.

Tax Form 1099-R is used to report iRA withdrawals although pre-tax withdrawals going to another pre-tax account may not be reported since that isn't a taxable event. Also, post-tax withdrawals going to another post-tax account may not be reported. The required tax forms are due to IRS rules.


Many bank employees don't understand the detailed rules involving IRAs since not many customers keep their IRA at a bank as their money can grow faster at a brokerage. The Account owner also doesn't have to worry about the $250k limit on an FDIC account. (Brokerages have similar insurance but at a much higher amount.)
dbr
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Re: Ally bank would not allow me to take monthly interest from my CD IRA and move to ANOTHER ALLY savings IRA

Post by dbr »

drcwks wrote: Fri Jun 07, 2024 4:30 pm Ally bank would not allow me to take monthly interest from my CD IRA and move to ANOTHER ALLY savings IRA.

As posted by another poster above I would think this is an Ally bank rule regarding the terms and conditions on your CD, namely that you only get the interest when the CD is redeemed. It has nothing to do with IRAs, IRS rules, etc.

Confusion over what is an IRA account and what are the investments held in any particular IRA account has been discussed.
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drcwks
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Re: Ally bank would not allow me to take monthly interest from my CD IRA and move to ANOTHER ALLY savings IRA

Post by drcwks »

Thanks for everyone’s input. I’m new to this site and not up on how to respond to each individual.

I understand most investors don’t see the purpose of CD iras but I lost a lot of money in the market in my 401K during the dot com days and very gun-shy investing in stocks even though I have $70K in Vanguard and $43K in Ally invest ($40K invested). I finally learned LONG TERM and bought most of my stocks when covid drove the market down. I won’t need that money for 10 years or more if I live that long.

Okay…back to addressing comments to clear some things up.

In 2023 Ally paid me monthly interest from CD IRA to my Ally savings which generated a year end 1099R. So that is not a problem. I used to take distributions at the end of the year from whatever CD IRA was going to have the worst interest on renewal. The compounded interest is not that much in a year. All my CDs are in IRAs.

The interest is paid monthly from 2 of my 4 CD IRAs. That is not the problem. I just wanted to defer taking a contribution for 12 months of interest If I were able to live on 6 months’ worth so not ALL is a distribution.

I currently have a local CU with another CD IRA and they are depositing my monthly interest into another IRA and last year I only needed 3 months of interest, so I did a distribution out of the other IRA from same CU. ONLY generated a 1099R for 3 months.

I was asking the question about any IRS tax rule about doing what my local CU allowed me to do. I could find NOTHING on IRS site if this was okay.

I think my local CU would know the IRA rules. So, ALLY must have their own rules.

I’m 68 years old so no worries about RMDs and I’m drawing SS.

MY argument on taking interest early/monthly, which is allowed on most of my CD IRAs.

If I left my interest in until the CD IRA matures, and I elected NOT to renew. Ally or my local CU would then cancel that CD IRA ACCT and move ALL THE money into my other IRA at same institution.

I could then move that IRA to vanguard, Ally invest etc. as a custodian-to-custodian transfer. Whatever the terminology is and NO distributions for a 1099R would occur.

I’m STILL moving the previous interest that I wanted to move on a monthly basis. I don’t see the difference. IN MY Opinion It’s not a distribution if it was deposited directly into another IRA to any institution.

I will update everyone when I get that form that the ALLY IRA person says I could PUSH the monthly CD IRA interest to my ALLY INVEST side and NO distribution would be tagged to that move. I MAY get a surprise at the end of the year from ALLY saying all the money I pushed to ALLY invest activated a 1099R.

We will see. But I know I need to start investing more into stocks since my other 5.5% CD IRAs will be much less on renewals. And pushing funds to ALLY invest is just easy and hopefully immediate.

BUT once again…… MY LOCAL CU allows that scenario.

I had all my money at one time from 2014 to 2018 with WFB advisors but I couldn’t stomach the losses and lost sleep over the volatility of the markets. Since I retired in 2014. That’s when I withdrew all my funds in 2018 and started my CD IRAs.

I Know I’m barely keeping up with inflation and I still have a mortgage on a 2nd vacation home. (never expected to retire at 58). Since I’m basically on a fixed income my ONLY way to get a raise is to up the rent on small property I own with my brothers. I finally see the advantage of rental property as cash flow and investment where the tenants get a raise and so do I.

I WISHED I would have learned more about ROTH IRAs years ago.

And off topic….. wish late elementary schools would have taught the basics of banking, interest, investing in stocks early in a child’s life. At least open a bank account for your child etc.

Thanks for everyone's comments and advice.
VViseguy
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Re: Ally bank would not allow me to take monthly interest from my CD IRA and move to ANOTHER ALLY savings IRA

Post by VViseguy »

drcwks wrote: Sat Jun 08, 2024 1:26 pm Thanks for everyone’s input. I’m new to this site and not up on how to respond to each individual.

I understand most investors don’t see the purpose of CD iras but I lost a lot of money in the market in my 401K during the dot com days and very gun-shy investing in stocks even though I have $70K in Vanguard and $43K in Ally invest ($40K invested). I finally learned LONG TERM and bought most of my stocks when covid drove the market down. I won’t need that money for 10 years or more if I live that long.

Okay…back to addressing comments to clear some things up.

In 2023 Ally paid me monthly interest from CD IRA to my Ally savings which generated a year end 1099R. So that is not a problem. I used to take distributions at the end of the year from whatever CD IRA was going to have the worst interest on renewal. The compounded interest is not that much in a year. All my CDs are in IRAs.

The interest is paid monthly from 2 of my 4 CD IRAs. That is not the problem. I just wanted to defer taking a contribution for 12 months of interest If I were able to live on 6 months’ worth so not ALL is a distribution.

I currently have a local CU with another CD IRA and they are depositing my monthly interest into another IRA and last year I only needed 3 months of interest, so I did a distribution out of the other IRA from same CU. ONLY generated a 1099R for 3 months.

I was asking the question about any IRS tax rule about doing what my local CU allowed me to do. I could find NOTHING on IRS site if this was okay.

I think my local CU would know the IRA rules. So, ALLY must have their own rules.

I’m 68 years old so no worries about RMDs and I’m drawing SS.

MY argument on taking interest early/monthly, which is allowed on most of my CD IRAs.

If I left my interest in until the CD IRA matures, and I elected NOT to renew. Ally or my local CU would then cancel that CD IRA ACCT and move ALL THE money into my other IRA at same institution.

I could then move that IRA to vanguard, Ally invest etc. as a custodian-to-custodian transfer. Whatever the terminology is and NO distributions for a 1099R would occur.

I’m STILL moving the previous interest that I wanted to move on a monthly basis. I don’t see the difference. IN MY Opinion It’s not a distribution if it was deposited directly into another IRA to any institution.

I will update everyone when I get that form that the ALLY IRA person says I could PUSH the monthly CD IRA interest to my ALLY INVEST side and NO distribution would be tagged to that move. I MAY get a surprise at the end of the year from ALLY saying all the money I pushed to ALLY invest activated a 1099R.

We will see. But I know I need to start investing more into stocks since my other 5.5% CD IRAs will be much less on renewals. And pushing funds to ALLY invest is just easy and hopefully immediate.

BUT once again…… MY LOCAL CU allows that scenario.

I had all my money at one time from 2014 to 2018 with WFB advisors but I couldn’t stomach the losses and lost sleep over the volatility of the markets. Since I retired in 2014. That’s when I withdrew all my funds in 2018 and started my CD IRAs.

I Know I’m barely keeping up with inflation and I still have a mortgage on a 2nd vacation home. (never expected to retire at 58). Since I’m basically on a fixed income my ONLY way to get a raise is to up the rent on small property I own with my brothers. I finally see the advantage of rental property as cash flow and investment where the tenants get a raise and so do I.

I WISHED I would have learned more about ROTH IRAs years ago.

And off topic….. wish late elementary schools would have taught the basics of banking, interest, investing in stocks early in a child’s life. At least open a bank account for your child etc.

Thanks for everyone's comments and advice.
Dear drcwks,

I'm still not entirely clear about the difficulty you are having. If you transfer money or assets from a traditional IRA to another traditional IRA, then no distribution takes place, and no 1099-R would be generated. However, since you wrote, "I WISHED I would have learned more about ROTH IRAs years ago", I am wondering if you have requested that money be transferred from a traditional IRA to a Roth IRA. If so, then you would be taking a distribution from the traditional IRA, and Ally would be required to issue a 1099-R. Also, if that is what you have done (or attempted), then the amount going into the Roth would have to be designated as either a contribution (for which you would need to have sufficient wages for that tax year), or a Roth conversion. These are all IRS rules, not Ally Bank rules.

That said, Ally Bank could have their own rules regarding the management of CDs. In particular, at the time you open a CD the bank might require you to designate what you want done with interest from a CD (e.g., remain in the CD for compounding, or be put into a savings account, etc.). Whether they would permit you to change where interest goes during the term of a CD is something that is likely written in their terms and conditions.
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CAsage
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Re: Ally bank would not allow me to take monthly interest from my CD IRA and move to ANOTHER ALLY savings IRA

Post by CAsage »

Weirdly enough, I've had IRA CD's in the past (Mountain America and Andrews FCU) and neither paid out the interest from the account - it was simply added to the CD balance monthly or quarterly and then compounded. Since it's a PIA to move money between institutions, I will never do that again. It is possible to have one IRA at a brokerage like Fidelity or Vanguard and buy CDs within it. Not sure if they compound the CD balance or send the interest to your IRA settlement account, but in either case, no 1099-R is generated since there is no withdrawal from the IRA.
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exodusNH
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Re: Ally bank would not allow me to take monthly interest from my CD IRA and move to ANOTHER ALLY savings IRA

Post by exodusNH »

drcwks wrote: Sat Jun 08, 2024 1:26 pm In 2023 Ally paid me monthly interest from CD IRA to my Ally savings which generated a year end 1099R. So that is not a problem. I used to take distributions at the end of the year from whatever CD IRA was going to have the worst interest on renewal. The compounded interest is not that much in a year. All my CDs are in IRAs.

The interest is paid monthly from 2 of my 4 CD IRAs. That is not the problem. I just wanted to defer taking a contribution for 12 months of interest If I were able to live on 6 months’ worth so not ALL is a distribution.
I'm still not clear on what you want.

Are you saving that you have a current CD with interest compounding monthly and that rather than compound the interest in the same CD, you want that interest to be compounded into a different CD?

It's possible that Ally doesn't want to allow this because your 4.5% CD is below market rate. It's also possible that this particular CD only pays out interest at maturity. In either case, you almost certainly agreed to these terms when you purchased the CD.
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