Many banks and credit unions offer a variety of financial products and services these days. Among the offerings are Individual Retirement Accounts (IRAs). IRAs provide you with a tax-advantaged way to save for retirement. And, while your overall rate of return on an IRA depends on how well the investments you hold in the account do, there are some IRA investment returns you can control.
Holding CDs in Your IRA
The list of assets you are allowed to hold in your IRA is a fairly long one, and it includes certificates of deposit (CDs). CDs can make desirable additions to retirement portfolios because they are safe. As long as your CD account is insured by the FDIC, your money is protected if the bank fails. Additionally, because it is a CD, you get a guaranteed interest yield for the maturity length of the CD.
Another advantage is that you don’t have to pay taxes on your interest earnings immediately when you have a CD held in your IRA. Depending on whether or not your IRA is a Traditional or Roth account, taxes are deferred until you withdraw money during retirement, or not charged at all. Because CDs are becoming increasingly popular in IRAs, some financial institutions are offering IRA CDs.
Comparing the Best IRA Rates
In truth, IRA CDs aren’t a lot different from regular CDs. However, many financial institutions make them as attractive as possible if you use them. Many IRA CDs include competitive interest yields. They feature longer maturity terms, and may have higher minimum deposit requirements. If you are willing to lock more of your money up, for seven to 10 years, many financial institutions will reward you with better yields.
Before you decide that an IRA CD is the best option, though, you should shop around. Compare the rate you are being offered on the IRA CD to what is available from different financial institutions. Keep in mind, too, that any CD can be held in an IRA. This means that if the best IRA rates aren’t available with CDs marketed as IRA products, you can include a more competitive CD in your retirement account.
A number of online financial institutions offer the opportunity to earn more in interest, and you shouldn’t just rely on the “IRA CD” label. Compare CD rates just as you would with any other financial product or service.
Rolling Over Your CD
After your CD matures, you have to make sure that you don’t withdraw the money from your IRA account. There are usually options to roll over the CD, renewing it for another term. You can also take the money in your retirement account and use it to purchase other assets. Just make sure you don’t make a withdrawal; if it’s a withdrawal, you may have taxes and penalties to pay. You will have to purchase other assets to keep in your IRA with the money.
An IRA CD can be a great addition to your retirement planning. However, make sure you are getting the best IRA rates, and that you aren’t being blinded by good marketing. Comparison shop, and make sure you understand the ins and outs of your IRA before making a decision.