Can You Roll Over a Regular IRA Into a CD?

You can roll over an IRA (Individual Retirement Accounts) into any kind of account you would like, depending on the tax consequences you are willing to pay. The concept behind traditional IRAs is that they reduce your taxable income at the time of investment and postpone taxes on the money to later life, presumably at or near retirement when you will be earning less money and thus pay less in taxes. If you withdraw money from your IRA before age 59½, you must pay taxes on the amount, plus a 10 percent penalty. There are two exceptions to avoid the penalty and one way around it, which is called the golden rule.

The Golden Rule

Some IRAs are offered by employers. And if they are company-sponsored, the companies call the shots on the kind of IRA in which they invest your contributions. If you opt out of an IRA before age 59½, you will be subject to a 10 percent penalty unless you meet the home or education exemptions. Here is the golden rule: To move the money from an IRA to a CD, open a separate IRA account and directly transfer the money to the new IRA (in whatever amount you choose). Make sure the new IRA is self-directed so the money is invested in CDs. It's important that you do this as a direct deposit. Do not, for a host of complex reasons, withdraw the money from the IRA and deposit it yourself. Make sure it is a direct transfer or you're inviting tax complications. Go to the IRS.GOV website and under "forms and publications" go to publication 590. It addresses almost all questions you might have.

Education exemption

If you withdraw IRA money before age 59½, you can avoid the 10 percent penalty if the money is used for education for yourself, spouse, children or grandchildren. The educational institution must be IRS-certified to avoid the penalty. It can be a college, university, vocational school or other post-secondary facility that meets federal student aid program requirements. The school can be public, private or nonprofit as long as it is IRS-accredited.

First Home Purchase

You can use up to $10,000 in IRA funds toward the purchase of your first home. If you're married and you and your spouse are both first-time buyers, you each can contribute $10,000 from individual accounts for a total of $20,000. It gets even better. First home purchase does not really mean first home purchase. It means that you can qualify as a first-time home buyer as long as you or your spouse did not own a home in the previous two years. It gets even better. The money can be used as a down payment for you and your spouse, your children, grandchildren or a parent. If you believe, as many do, that property is the safest investment, this may be a better option than investing in a CD.

Self-Directed IRA

If you have a self-directed IRA, you direct your investments. In other words, you can choose to take money in the IRA and direct the broker to invest your money in CDs. You can direct your investments out of mutual funds or the stock market into CDs entirely within the account. There are no tax disadvantages because the transactions are entirely within the IRA itself.

Variables and Limits

It is recommended that you consult an investment professional before deciding on a plan in which to invest. The variables and limits change with age and the amounts you plan to invest. For a standard IRA, the rule of thumb is that the first $5,000 is tax-exempt (it does not count as part of your gross income at the time of investment and is therefore tax-exempt), but you can put as much money into the account as you would like. However, only the first $5,000 is deductible, the rest is taxable. The other thing to keep in mind is that the IRA investment must remain invested for five years before withdrawal or it will be subject to penalties and taxes.

References

• An Overview
• Just About All Your Answers on IRAs and CDs Here
• Another Option, Roth IRAs