Revoking Your IRA

When you first open an IRA with a financial institution (custodian), you have to sign the custodian's IRA contract. This IRA contract must contain an IRA agreement and an accompanying disclosure statement. Usually both these documents are contained in one IRA contract, with the disclosure statement attached right behind the IRA agreement. The disclosure statement is the part of the IRA contract that describes the IRA in layman's language. It's also usually where you can find the language about your right to revoke the IRA within a certain period of time.

After signing the custodian's contract to establish the IRA, you must be given the right to revoke the IRA (or change your mind). IRS rules say that the custodian must give you a minimum of seven days to revoke the IRA.

You might want to revoke your IRA for a number of reasons. For example, you may have invested your IRA money in a particular investment that now you are uncomfortable with for some reason or maybe you realized that there are excessive fees you didn’t notice when you first opened the IRA. Whatever the reason, you can revoke the IRA and get all of your money back, but you must follow your custodian's procedures within their revocation time period (usually seven days from when you first opened the IRA).

If you decide to revoke the IRA during the revocation period, the custodian cannot charge you fees of any kind, including sales commissions, administrative fees, or any investment fees such as a CD penalty. Even if you invested your IRA money in an investment that lost value during the revocation period, the custodian must return your original deposit amount. Because of this rule, most custodians won’t allow you to invest your IRA funds in an investment that could drop in value during that time, and will likely make you first invest your money in something stable, like a money market account, until after their revocation period has ended. The custodian has the option to pay you interest during the revocation period, but they don’t have to as long as they give you back all of your principal.

Ideally, it’s better to carefully read the custodian’s IRA contract before you invest, but it’s good to know you have at least seven days afterwards to change your mind and get your money back.

- By Joe Cicchinelli and Jared Trexler

Posted in: disclosure statement,Ed Slott,ed slott ira,ed slott retirement,financial,financial advisor,investment,IRA agreement,IRA custodian,IRAs,joe cicchinelli,money market,revoking IRA