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I just found out that my father decided to withdraw his UPS pension. My father’s immediate question was, “How do I avoid paying taxes on this?”
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After going over the various options in my head, I remembered something about my parent’s portfolio. My risk-averse parents keep almost all of their money in a local savings account that earns 0.05% APY. The most logical response was, “Dad, move your retirement to an IRA CD.”
An IRA CD is a certificate of deposit held in an IRA. A CD works like a savings account, except that the money in the CD is locked up for the duration of the CD to earn higher interest. If you withdraw money early, you may pay a penalty equal to the predetermined interest. For example, on a one-year CD, you typically pay three months of interest to withdraw the funds before the end of the year.
You can buy a CD from your IRA, they make IRA CDs. For CDs outside of an IRA, these are the best rates.
The downside of CDs is the early withdrawal penalty. Since you’ll be buying them from your IRA, you’ll probably have a better idea of when you need the money than, say, if you’re using CDs in your emergency fund. With current interest rates, you can get 5% or more guaranteed on your money. It’s not that bad.
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Below are some of the best IRA CD rates we can find. Keep in mind that the APY on a CD can change frequently, so be sure to confirm the rate with the bank before investing your money.
We’ll start the list with the big name bank, Discover, followed by popular online banks, Ally and Synchrony. From there, you will get the highest prices from April 1, 2024.
Discover Bank is the most popular name on our list and is important to many people. Choosing a bank that has been around for decades can help people feel that their money is safe. IRA CD rates here may not be high, but they are competitive. CDs are FDIC insured.
Ally is a popular online bank that offers top savings products including competitive rates on IRA CDs. CD terms range from 3 months to 5 years and there is no minimum deposit to open an account. Accounts are FDIC insured. Here are the top IRA CD rates at Eli:
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Synchrony Bank is an online bank that offers a variety of IRA CD terms from 3 to 60 months. There is no minimum deposit required to open an account. However, you cannot open an account online; Instead, you need to call Synchrony. You can find a number to call on the Synchrony website. Accounts are FDIC insured. Here’s a look at Synchrony’s top IRA CD rates:
Belco Credit Union offers easy membership for everyone. You can join the Belko Foundation with a small donation of $10. From there, you can access IRA CDs and other financial products, including checking accounts, savings accounts, and credit cards. Belco offers a good rate of 4.50% APY on a 12-month CD. The minimum deposit is $500. CDs are insured by NCUA.
USAliance Financial is a credit union that offers an easy way to join. You can become a member of the American Consumer Council for an $8 donation and join the USAliance. You’ll find the best rate for a 12-month CD at USAliance at 5.15% APY. You’ll find the best rate here for an 18-month CD with an APY of 4.50%. The minimum deposit for both CDs is $500. CDs certified by the CIA.
Business Federal Credit Union also offers easy membership for an $8 donation through the Consumer Council of America. FCU’s commercial department offers the best rate of 5.02% APY on 12- to 23-month IRA CDs. The minimum deposit is $500 and the accounts are insured by NCUA.
Best 6 Month Cd Rates For April 2024
US Senate Federal Credit Union also offers membership through the Consumer Council of America. You can even use the promo code found here to waive the ACC membership fee for $8. US Senate FCU offers the best rate of 4.08% APY for a 3-year CD with a minimum deposit of $1,000. Accounts verified by NCUA.
GTE Finance membership is open to anyone who joins the CU Savers Educational Finance Club for a $10 membership fee. You’ll find your best 12-month CD rate at GTE Financial is 5.12% APY. The minimum deposit is $500 and the accounts are insured by NCUA.
Northwest Federal Credit Union offers easy membership through one of the many community organizations. When you register online, you can choose an organization to join, for example, the Humane Society of America. Northwest FCU offers the highest 5-year CD rate at 4.85% APY. The minimum deposit is $1000 and the accounts are insured by NCUA.
To open an IRA CD, you must first open an IRA at the bank or credit union where you will purchase the CD. For example, let’s say you buy a CD from USAliance Financial. First, you’ll open an IRA at USAliance (either traditional or Roth) and fund that IRA.
Rates & Fees
You can fund it with your own cash (up to the annual contribution limit) or withdraw some money from an existing IRA. Be aware that there are tax consequences when you transfer money from a Roth to a traditional IRA and vice versa.
If your money is in an IRA at your favorite bank, you can use it to buy a CD. Not all banks allow CD purchases from an IRA, so if you don’t use a bank on this list, be sure to ask before transferring money.
Read the terms carefully before committing to a CD. Remember that your funds will be held for the duration of the CD. Choose a term you are comfortable with and understand the penalty before you go.
A Roth IRA is not tax deductible. All money you donate is taxable when received, but then grows tax-free. You pay no taxes when you withdraw from a Roth IRA in retirement.
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A traditional IRA works differently. With a traditional IRA, the money you contribute is tax-deductible and tax-deferred. If you withdraw from a traditional IRA in retirement, you will pay taxes on that amount. There are income deduction limits and limits on any IRA contributions.
All banks and credit unions on this list offer FDIC or NCUA insurance. If the bank or credit union goes bankrupt, the insurance will pay you back. Up to $250,000 per investor in the institution is protected.
Please note that if you have more than one account with the institution, the maximum amount available is $250,000, or your accounts above that. However, if you have IRA CDs at two different institutions that offer FDIC or NCUA insurance, you will be charged up to $250,000 at each institution.
If you are looking for a safe investment with a guaranteed rate of return, CDs can be the best solution. They earn competitive interest rates compared to regular savings accounts and are insured like a savings account.
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While your long-term savings should be invested in the stock market, CDs provide a safe place to store the money you want in the short term.
Rob Berger Rob Berger is the founder of The Dough Roller and The Dough Roller Money Podcast. Rob, a former securities law attorney and contributing editor at Forbes, is the author of Retire Before Parenting. He coaches private investors on his YouTube channel and at RobBerger.com. View all posts A white circle with a black border surrounds the chevron. It says “Click here to go back to the top of the page.”
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