Typical individual retirement accounts (IRAs) are savings vehicles through which you can build wealth for retirement without worrying about some taxes for a while. Financial institutions, such as banks, insurance companies and mutual fund companies, are usually custodians of these accounts. Many of them have rules that dictate what you can or cannot do as an investor.
So, if you want to write checks associated with your IRA, you must find out beforehand whether your financial institution allows it. Not every custodian allows check-writing privileges for such accounts. After all, IRAs tend to limit your access to your savings until you are old enough to qualify to get them, so you can have a decent retirement income.
What Does Check-Writing Involve?
Check-writing authorizes your financial institution to transfer your funds from your account to another one. The recipient’s account can be within the same financial institution or in another one. Therefore, the check is the instrument that provides this authorization.
For a check to be valid, it must contain the following details:
- The recipient’s official name
- The date on which the check is written
- The amount of payment in both the numeric form and words
- Your signature
The check can also contain a memo, which summarizes why you are issuing the payment in the first place.
The payment you receive via a check can be withdrawn in the form of cash. And you can also deposit it directly into your account. But you need to be careful because someone else can cash your check if you give it a blank endorsement by signing your name on the back. For this reason, you must research the implications of having check-writing privileges on an IRA account.
What Are Check-Writing Privileges on an IRA?
Check-writing privileges on an IRA refer to a service offered to IRA account holders to enable them to write checks against their investment shares. And there is usually a minimum amount that you will be required to write, which your mutual fund company sets. You can also use these privileges to fund your IRAs.
Some financial institutions may offer limited check-writing privileges. Such privileges enable you to write a limited number of checks per specified period, usually about a month. If you exceed the set amount, your IRA custodian will not allow additional transactions for that period.
Other financial institutions may allow you to have unlimited check-writing privileges, which means you can write as many checks as you want each month. If you intend to have check-writing privileges on an IRA account, it would be wise to get unlimited privileges if you can. That way, you can write as many checks as you like to cash in your distributions.
How to Have Check-Writing Privileges on an IRA
Below are the tips you can implement to get checking privileges on an IRA account.
- Find out if the financial institution linked to your IRA offers check-writing privileges. You will likely be given a link to an online application form or be directed to where to get one. Read through the terms and conditions carefully.
- Determine if the kind of IRA you own has access to the privileges in question. Some IRAs offering check-writing privileges include traditional IRAs, SEP IRAs, ROTH IRAs and SIMPLE IRAs. It all depends on your IRA custodian.
- Ask about the minimum age requirement. Typically, you need to be 59.5 years old to withdraw money from your IRA penalty-free. But if you meet certain conditions, you may be able to access the money penalty-free before that. Some of these conditions include removing money to pay for expensive medical bills, losing your job and having to pay for health insurance and paying for college.
- Find out about the limits on your check-writing privileges. Will you have limited or unlimited privileges? How often can you write checks in any given year? For how long should your IRA account have been in existence to allow checks?
- Find out what fees are there, if any, for the privilege of being able to write checks.
- Determine the minimum amount you can write checks for. Then you can calculate the best way to access your IRA distributions to cater to your needs for the entire year.
- Consult your tax advisor on how you can avoid paying taxes on the money you withdraw from your IRA via checks. For example, suppose you are over 72 years old and taking your minimum qualified distributions when you write a check directly to a qualified charitable institution. In that case, you could reduce your taxable income.
- Read through the rest of the terms and conditions on the checking form offered online by your IRA custodian. You may have to download the document. Ensure you have understood everything before filling in the required details and appending your signature.
- Submit your form online or by mail, depending on the requirements.
If you intend to obtain check-writing privileges, you may want to work with a financial institution that offers online banking services. That way, if there is something wrong with your checks or fraud is detected, you can keep track of your transactions easily.
Also, remember that checks written against IRAs may not be accepted everywhere. And the recipient may not be able to access them if they live abroad. However, they still offer convenience to IRA owners who want additional liquidity and may need to reduce their taxable income in old age. So, they are worth considering.
- Corporate Finance Institute: Guide on How to Write a Check
- Colors-NewYork: What are the three rules for check writing?
- The Law Dictionary: What is CHECKWRITING PRIVILEGE?
- Finra: Money Market Accounts and Money Market Mutual Funds
- GlassJacobson: How to Use IRA Checkwriting in Retirement to Save on Taxes
- Checks from an IRA account may not be accepted everywhere. Some banks frown upon this type of check because of slow turnarounds or limitations on cashing and transferring its funds. Your financial institution should be able to provide you with information on limitations and possible problems.
I hold a BS in Computer Science and have been a freelance writer since 2011. When I am not writing, I enjoy reading, watching cooking and lifestyle shows, and fantasizing about world travels.