An IRA certificate of deposit, or CD, allows you to save for retirement without taking too much risk. CDs do not earn as high a rate of return as mutual funds or bonds do. They are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. Unlike other investments, money you place in a CD will not lose value. Buying a CD in an IRA is very simple and requires little more than a visit to a bank.
1. Research the rates offered on IRA certificates of deposit by various banks. Visit the website of each bank to see what rates they offer. Rates may vary based on the amount you plan on putting in the CD and the length of the CD. Some CDs may have variable rates, while others are fixed.
2. Decide on the length of the CD. You may earn a higher interest rate on a longer-term CD, but won't be able to access the money without an interest penalty for the length of the CD. If you are in retirement now or are over age 59 1/2 and wish to move funds in your IRA to a more secure account, choose a CD length that is not very long so that you can access the money without penalty if you need it.
3. Contact the bank that offers the length of CD you want and the highest rate. Complete any required paperwork to open the IRA CD. You may do this in person or download the forms from the bank's website. Usually, you must name a beneficiary when you open an IRA. Your beneficiary can be your estate or it can be a family member or friend.
4. Choose between a Roth or a traditional IRA. Contributions to a traditional IRA are tax-deductible; contributions to a Roth are not but are not taxed when you need the money. If you are over age 70 1/2, you'll have to choose a Roth IRA.
5. Select how you will fund the CD and provide that information to the bank. If you are opening a new IRA and a new account at that bank, you can give the bank a check for the contribution. IRA contributions are capped at $5,000 for the year as of 2011, or $6,000 if you are over age 50. If you've contributed to another IRA already for the year, you'll have to subtract that contribution from $5,000. If you already have an account with the bank, you can transfer money from your primary savings account to the CD. Another option is to transfer money from an IRA mutual fund or an IRA savings account at another bank to the new CD. Contact the other bank and provide the information on your new account so they can wire the money.
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