Can an IRA be Rolled into a CD Without Penalty?

If you are thinking about moving money from an IRA (which stands for an Individual Retirement Account) into a CD (which stands for Certificate of Deposit), you need to be aware of what could, or could not cost you a penalty.

Generally, you would not need to "rollover" an IRA to invest in a CD. Rollover is a term that has a specific meaning when it comes to IRA accounts.

You can invest in a CD using your IRA funds without incurring a penalty. Here's why:

• You can invest in a wide range of different investment vehicles with the money in your IRA. While many people choose to invest their IRA in stocks, bonds or mutual funds, you are under no obligation to do so.

• You can invest your IRA in a CD. This means you don't need to rollover an IRA in order to invest in a CD. You can leave the money in the IRA it is already in and just buy a CD as your investment in that IRA account.

Some investment firms sell special CDs called "IRA-CDs." You do not generally have to buy one of these special IRA-CDs. You can buy any CD that is offered for sale through the brokerage firm or financial institution where you have your account and just keep the money in your IRA. There is, of course, no penalty for doing this since you aren't withdrawing any money.

It is important to note that CDs are not as risky as some other types of IRA accounts. However, CDs also yield a lower return on investment due to their low risk. Therefore, you must decide if this is the proper investment for your retirement account.

Withdrawing Money From a CD

It is important to note that, if your IRA is currently invested in a CD, you will generally have to wait until this CD matures in order to withdraw money from it. If you withdraw the funds before the CD matures you may pay penalties for the early withdrawal.

Once the CD matures, you can withdraw the money with no penalty assessed and roll it over into another CD account or into another type of investment in your IRA.

What Is a Rollover of Your IRA?

So, why don't you rollover IRA money into a CD?

• An IRA rollover is usually a term that refers to moving money from one pension account to another. For example, you might rollover a standard IRA into a Roth IRA. You might also rollover a 401K into an IRA.

• Some of these rollovers may cause you to incur tax liability while others may not. For example, rolling over money from a traditional 401K into an IRA may not cause you to owe any taxes, since both of these accounts let you invest with pretax dollars.
• Rolling over a traditional IRA to a Roth IRA may cause you to incur taxes because in a Roth IRA, you invest with after tax dollars (not pre-tax dollars).

You can buy a CD in an IRA without penalty. For more information on CDs as IRA investments, be sure to talk with a tax professional. He or she can help you determine the best way to invest your IRA funds.