How to Convert a Roth IRA to a CD IRA
A Roth IRA is an Individual Retirement Account (IRA) that follows the guidelines set forth for all IRAs by the Employee Retirement Income Security Act and enforced by the IRS. The Roth was established in 1997 with the Taxpayer Relief Act and has become a major player in retirement planning, allowing assets to grow tax free compared to tax-deferred as with traditional IRAs. In a Roth IRA, the IRS has a variety of allowable investments including a bank time certificate. If you currently have your Roth IRA invested in market securities and are looking to reduce risk, moving the IRA into a bank IRA is a good choice.
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Instructions
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Contact the bank where you want to open an IRA CD. You can do this online, by phone or in person. Explain that you have a Roth IRA with another custodian and you would like to move the assets into a CD.
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Fill out the appropriate paperwork to establish an IRA at the bank. You will also want to file paperwork to transfer your asset from the existing IRA custodian to the new bank IRA account. Provide the bank with a copy of the existing Roth IRA statement.
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Lock in the rate for the CD. A transfer may take up to six weeks. During this period, interest rates may decline. Ask the bank representative if they can lock in the higher CD rate while waiting for the transfer to come in. Many institutions will do this.
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Check with the bank to make sure the funds have transferred properly. You do not need to contact the existing IRA custodian in the transfer.
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Tips & Warnings
You can recharacterize a Roth IRA into a traditional IRA if you no longer wish to have the asset grow tax free. This may be done for amounts converted or contributed as long as the recharacterization occurs before the deadline to file your taxes for the year of the conversion. So if you convert in December 2009, you have until April 15, 2010 to recharacterize (October 15, 2010 if you file an extension). Speak to a tax advisor about the possible benefits and tax consequences if you choose to recharacterize.
