October 3, 2019 at 12:11 am #4669
I was planning to transfer funds from some maturing CDs at one CU to another bank since the yields are higher. The new bank requires IRA transfer forms to be filled out including the new account number so they know where to put the $$ when they get them. That requires setting up a new CD each time with its unique account number.
Then I got the idea to just set up a high yield savings (HYS) account for TIRA and another for Roth so the transfer forms would only have one of those numbers or the other. I could set up the CDs later. When talking
to the bank person, he informed me that I could do this concept with money market funds (lower yield) but not w/ the HYS account. I was surprised by this…….I just assumed you could have an IRA HYS but for some reason
I don’t think I have any.
Is that really true that you can’t have a HYS IRA account and what is the reason?October 3, 2019 at 3:29 pm #4670
Perhaps a clue to this mystery……..at least one bank allows you to have an IRA HYS account which suggests it is not forbidden.
One bank that does not allow it said it because is a “transactional” account at their bank while an IRA money market (at their bank) is not.
I got the impression that this was not by design but by default…..that
if they allowed an IRA HYS account the owner could do online transactions at will (even externally) and they did not want to allow that but the computer system was not designed to forbid that so they did it administratively by not allowing IRA owners to have an IRA HYS.
Why the IRA money market acct did not have that problem and why they couldn’t have the same restrictions on the HYS I don’t understand.October 4, 2019 at 2:19 pm #4677Alan S.Participant
You are right. This is the decision of the custodian, and the IRS has no rule barring savings accounts investments in an IRA. Many institutions indeed offer such accounts.
As for the choice custodians make, savings accounts are historically high frequency contribution and withdrawal accounts for small amounts, neither of which occurs to that frequency for an IRA, particularly the withdrawals. Offering savings accounts would probably aggravate excess contributions and rollover issues with the one rollover limit. It might also cause more confusion for some people keeping track of whether their savings account was an IRA or not. There are probably other factors as well, such as processing platform limits, etc.October 4, 2019 at 5:29 pm #4678
Thanks for the comments/confirmations, Alan. Still a bit mystified why Bank A would allow money market funds but not HYS. Seems like they would have similar problems. The pessimist in me says they give you the
lower yielding acct in exchange for any flexibility that you get. Rules are rules, I guess, but I can still give them a headache about why they do it.
- You must be logged in to reply to this topic.