One of the great things about an Individual Retirement Account (IRA) is that it is so flexible. You can hold almost any type of asset in an IRA. This includes certificates of deposit (CDs). If you want to add the stability and safety of cash to your retirement account, you can consider adding a CD. And, because CDs are becoming increasingly popular in IRAs, it is possible to find CD account specially promoted as ideal for inclusion in your tax advantaged retirement account.
In reality, an IRA CD isn’t a lot different from a “regular” CD. However, many financial institutions offer better rates on IRA CDs. You can find some of the best CD rates on IRA CDs. This is because most of them have a fairly high minimum deposit requirement, as well as having average terms of between seven and 10 years. (You can, of course, see if you can get a longer-term CD for use in your IRA.) As a result, you should be able to find the best IRA CD rates are quite competitive.
One of the reasons that it can be preferable to hold a CD in an IRA is due to the fact that you have to pay taxes on the interest you earn each year from your CD. Even if you don’t receive a check for the interest in that year (it might be automatically added to the CD account), you still have to pay income taxes on what you earn. If you put the CD in an IRA, you can wait to pay taxes on the interest earned until you start withdrawing from your account; if you hold the CD in a Roth IRA, you won’t have to pay taxes on your earnings at all.
Usually, after the term of the CD is up, you can roll the money into a new CD to be held inside the IRA. Make sure you understand how that works, since you don’t want to inadvertently withdraw money from your account early.
Looking for the Best CD IRA Rates
If you are looking for the best IRA CD rates, shopping around is the way to go. Find out if your current bank offers special rates on CDs held in IRAs. Then, call around and compare. You should also look online. There are a number of aggregators that can offer you access to the best IRA CD rates available. Then, it is simply a matter of opening the account. You can either add the CD to a current IRA, or you can open an IRA with the bank. Some banks, though, might require you to open an IRA with them before you can get the competitive yield offered on the product marketed as an IRA CD.
In the end, a CD is just another helpful asset you can hold in your IRA. Holding CDs in your IRA (you can even create a CD ladder) can add some security to your IRA, and you can enjoy the tax benefits associated with certain retirement accounts.