You can roll over funds in an individual retirement arrangement at any time because the money belongs to you and you have the right to change your mind about how the funds are invested. However, while you can sell shares and liquidate savings accounts without incurring a penalty, you may have to pay a stiff penalty fee if you move funds held in annuities or certificates of deposit before the product matures.
Certificates of deposit accounts are time deposits. The CD issuer pays interest on the debt on the basis that you sign a contractual agreement to keep your money in the account for an exact period of time. Likewise, when you buy a deferred annuity such as a fixed or indexed annuity, you sign an agreement with an insurance firm under which you commit your money to the annuity for a set number of years. You can hold a CD or an annuity within an IRA account, but if you decide to move the money to a new investment then you have to pay a penalty for breaking the contract.
Federal law requires banks to assess a penalty fee equal to seven days of interest if you liquidate a CD within six days of purchasing it. Federal laws do no set out guidelines for penalties on longer-term CDs, but you usually have to pay a penalty of several months of interest, and some institutions also charge principal penalties.
On a fixed annuity, you can usually withdraw your principal without penalty, but you stand to lose your interest if you cash in the account. With indexed annuities and variable annuities, you have to pay much more substantial penalties that can exceed 8 percent of the contract value.
Generally, you can only buy a CD directly from the bank that issues it but some banks sell CDs to investors through brokerage firms. These CDs work similarly to regular CDs, except that many pay a return based upon the performance of the stock market as opposed to paying a regular interest rate. Typically, you cannot redeem a brokerage CD early. However, you can move your IRA brokerage CD to another investment firm by completing an account transfer. Alternatively, some brokerage CDs are marketable, in which case you could sell your CD to another investor and then roll over your cash. Some firms only offer in-house brokerage CDs that you cannot redeem early or roll over, in which case you cannot move your funds until the CD matures.
When you roll over IRA funds you receive a check from your IRA custodian and you have 60 days within which to invest the money in another IRA. If you do not complete the rollover within 60 days, then you have to accept the money as taxable income and you could also incur a 10-percent tax penalty if you are not yet 59-1/2. IRA custodians normally withhold 10 percent of your distribution to cover taxes and you get this money back at the end of the tax year. You can instruct your custodian not to withhold this money or you can set up a trustee-to-trustee transfer in which cases no taxes are withheld as your custodian transfers the IRA money directly to the new custodian.