Can Banks Close Retirement Accounts?

A retirement account is an investment account that you maintain for the benefit of your future. A retirement account allows you to make tax-deductible contributions, invest this money, and then take distributions from the account when you retire. The money in the account is not taxed at current income tax rates. Instead, taxes are deferred until you take distributions. But, a bank may want to close a retirement account, and you should understand the conditions under which this can occur.

Fees Not Paid

If you don't pay the IRA fees imposed by the bank, your bank may close the account and issue you a distribution for the amount left in the account. Normally, this is a non-issue since many banks withdraw the fee right from your retirement account. If you fail to pay the fee, it's because you have no money left in the account.

Full Liquidation

If you withdraw the full amount of the account, the bank is obliged to close your retirement account. You may be allowed to make a deposit within a limited time frame to keep the account open. However, a full withdrawal normally means that the bank will close your retirement account. If you want to make future contributions, you must open a separate account.

IRS Seizure

The IRS may force your account to close if it levies the account. Banks are obligated to comply with IRS rules and procedures. A tax lien and subsequent levy forces your retirement account to temporarily become the property of the IRS. If your retirement account is drained to pay back taxes, the bank will close your retirement account.

Transfer of Funds

You may opt to transfer some or all of your funds to another bank IRA. If you transfer all of the funds, the bank will close your account. This is because a transfer request often stipulates that a full transfer accompany a closure of the existing retirement account. Since the new bank will open a retirement account for you when accepting the funds, this is normally not a problem.

References

• "Practicing Financial Planning for Professionals (Practitioners' Edition), 10th Edition"; Sid Mittra, Anandi P. Sahu, Robert A Crane; 2007
• IRS.gov: Publication 590