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F ederal reserve Ba n k DALLAS, TEXAS of Dallas 75222 C i r c u l a r No. 75-1 90 D ecem ber 23, 1975 A m e r ic a n R e v o l u tio n B ic e n te n n ia l INDIVIDUAL RETIREMENT ACCOUNTS Amendment and Supplement to Regulation Q TO ALL MEMBER BANKS AND OTHERS CONCERNED IN THE ELEVENTH FEDERAL RESERVE DISTRICT: Following is the text of a statement issued December 4 by the Board of Governors of the Federal Reserve System: The Board of Governors of the Federal Reserve System today amended its Regulation Q—"Interest on Deposits"—to facilitate the establishment by eligible in dividuals of Individual Retirement Accounts (IRA) . The Employee Retirement Income Security Act of 1974 permits individuals not covered by a retirement plan to deposit up to $1,500 a year or 15 percent of gross income, whichever is less, in special tax-deferred retirement accounts. Last June 26 the Board invited public comment on a number of questions relating to IRAs and its action today was taken in light of comment received. The amendments, ef fective immediately, are: 1. Member banks may pay all, or a portion, of an IRA time deposit prior to its maturity, without penalty for early withdrawal, when the in dividual for whose benefit the account is established is 59 1/2 years of age or more, or becomes disabled. 2. Member banks may waive, for the purposes of IRA accounts, the $1, 000 minimum re quired for time deposits with four to six year m aturities. The first amendment would permit a depositor who had established—say—a fiveyear deposit, to make withdrawals from it without penalty before the end of five years if the depositor becomes 59 1/2 years of age, or becomes disabled. Regulation Q normally req uires a penalty in the form of a loss of interest when time deposits are withdrawn before maturity. This amendment gives full effect to the provision of the IRA statute authorizing withdrawal from IRA accounts when the depositor attains the age of 59 1/2 , or is disabled. Regulation Q already provides that early withdrawal may be made from time deposits without penalty in the case of death of the depositor. This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) - 2 - As a result of this amendment, member banks may distribute the proceeds of an IRA account in a single payment, without penalty, when the distribution is made in conformance with the IRA agreement between the bank and the depositor. Or, mem ber banks may establish IRAs from which periodic, annuity-like payments may be made with no reduction in the rate of interest paid. The second amendment to Regulation Q permits member banks to pay the 7 1/4 percent interest available for four-year time deposits, or the 7 1/2 percent interest available for six -y ear deposits, without requiring the usual minimum of $1, 000, since some depositors may not have such a sum to begin with. The Board believes this serves the intent of Congress in the IRA statute to encourage individuals to save for retirement. In order to obtain the tax deferral benefits of an IRA account for the year 1975, depositors must have established IRA agreements by December 31, 1975. IRAs already in existence may be amended to incorporate today's changes, which apply solely to IRA accounts. The Board is continuing to examine another question raised in its June 26 re quest for comment: whether elimination of the quarter of one percent differential in interest rate ceilings that now prevails for time deposits, between commercial banks and thrift institutions is appropriate in the case of long term IRA accounts. Enclosed is a copy of an Amendment and Supplement, both effective December 4, 1975, to the Board's Regulation Q, reflecting these changes. Any questions regarding this matter may be directed to the Regulations Department of this Bank at (214) 651-6169. Additional copies of the enclosures will be furnished upon request to the Secretary's Office of this Bank. Sincerely you rs, T. W. Plant First Vice President Enclosures BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM SUPPLEMENT TO REGULATION Q Effective December 4 ,1 9 7 5 S EC T IO N 217.7 — MAXIMUM R A T E S O F IN T E R E S T PA Y A B L E BY M E M B E R BA N K S O N T IM E A N D SA V IN G S D EPO SITS P u rsuant to the provisions of section 19 of the F ederal Reserve A ct and § 217.3 hereof, the Board of G overnors of the F ederal Reserve System hereby prescribes the following m axim um rates1 of inter est p er annum payable by m em ber banks of the F ed eral Reserve System on tim e and savings deposits: of fo u r years o r m ore, at a rate not to exceed percent.2 (a) Time deposits of $100,000 or more. T here is no m axim um rate of interest presently pre scribed on any tim e deposit of $100,000 or more. (c) Savings deposits. N o m em ber bank shall pay interest at a rate in excess of 5 percent on any savings deposit including savings deposits that are subject to negotiable orders of withdrawal, the issuance of which is authorized by F ederal law. (b) Time deposits o f less than $100,000. IV a (3 ) Investment Certificates — M em ber banks m ay pay interest on any tim e deposit of $1,000 or more, w ith a m aturity of six years o r m ore, at a rate not to exceed IV 2 percent.2 (1 ) E xcept as provided in paragraphs (a) and (d) (d) Governmental unit time deposits o f less a n d subparts (2) and (3) of this paragraph, no than $100,000. m em ber bank shall pay interest on any tim e deposit at a rate in excess of the applicable rate under (1 ) E xcept as provided in paragrap h ( a ) , no the following schedule: m em ber bank shall pay interest on any tim e de posit w hich consists o f funds deposited to the M aturity M a x im u m percent credit of, o r in w hich the entire beneficial interest 30 days o r m ore but less is held by, the U nited States, any State of the th an 90 days 5 U nited States, o r any county, municipality, or 90 days or m ore but less political subdivision thereof, the D istrict of C o th a n 1 year 5 V2 lumbia, the C om m onw ealth of P u erto Rico, the Virgin Islands, A m erican Samoa, G uam , or polit 1 year o r m ore b u t less ical subdivision thereof, at a rate in excess of the th an 30 months 6 highest of any of the permissible rates th at can be 30 m onths o r more 6Vi paid on tim e deposits u n d er $100,000 by any (2 ) M em ber banks m ay pay interest on any Federally insured com m ercial bank, m utual sav tim e deposit of $1,000 o r m ore, with a m aturity ings bank, or savings and loan instiution.3 1 The limitations on rates of interest payable by member banks of the Federal Reserve System on time and sav ings deposits, as prescribed herein, are not applicable to any deposit which is payable only at an office of a member bank located outside the States of the United States and the District of Columbia. 2 The $ 1,000 minimum denomination requirement does not apply to time deposits representing funds contrib uted to an Individual Retirement Account established pursuant to 26 U.S.C. (I.R.C. 1954) section 408. 3The highest permissible rate is currently 7.75 percent per annum (12 CFR 329.7 and 12 CFR 526.5). BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM INTEREST ON DEPOSITS AMENDMENT TO REGULATION Q f Effective D ecem ber 4, 1975, § 2 1 7 .4 (d ) is am ended by adding a sentence to the end thereof, to read as follows: S E C T IO N 217.4 — P A Y M E N T O F T IM E D E PO SIT S B E F O R E M A T U R IT Y » * * * * (d) Penalty for early withdrawals. * * * W here a tim e deposit representing funds con t For 1) 2) 3) 4) 5) 6) 7) 8) 9) 10) tributed to an Individual R etirem ent A ccount established p ursuant to 26 U.S.C. (I.R.C. 1954) § 408 is paid before m aturity w hen the individual for whose benefit the account is m aintained at tains age 5916 o r is disabled (as defined in 26 U.S.C. (I.R .C . 1954) 7 2 ( m ) ( 7 ) ) o r thereafter, a m em ber bank m ay pay all o r a portion of such time deposit w ithout a reduction o r forfeiture of interest as prescribed by this paragraph. * * * * * this Regulation to be complete as amended affective November 10, 1975, retain: Printed Regulation pamphlet containing Regulation Q dated January 1, 1971; Amendment effective January 1, 1974, Section 217.5(c)(4) and Section 217.6(i); Amendment effective November 27, 1974, Section 217.1 (e) (1); Amendments effective December 23, 1974, Section 217.4(e) and Section 217.6(e); Amendment effective May 16, 1975, Section 217.1(e) (3); Amendment effective June 5, 1975, Section 217.4(d) and amendment effective September 1, 1975, Section 217.3(f); Amendment effective September 2, 1975, Section 217.5(c); Amendment effective November 10, 1975, Section 217.1 (e) (1); Supplement effective December 4, 1975; and This slip sheet.