What Is a Jumbo IRA?
An IRA is an Individual Retirement Account. These accounts are designed to help you save money for your future. The IRA is a tax shelter. A Jumbo IRA refers to an IRA held with a bank or credit union which is purchasing a bank CD or share certificate of an exceptionally large dollar amount. Make sure you understand how these IRAs work and how they can increase your retirement savings.
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Identification
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A jumbo IRA is an IRA which invests in a share certificate or bank CD. These investments are time deposits. The money you deposit with the credit union or bank must stay invested with the institution for a set period of time. If you withdraw your money before the date specified by the institution, you will be assessed a penalty. The penalty is normally 3 months worth of interest.
Significance
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The significance of a jumbo IRA is that the issuing bank or credit union pays a higher rate of interest than a normal IRA CD or share certificate. Financial institutions also may require the IRA amount to be at least $50,000, and many times the minimum is higher, such as $100,000.
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Benefit
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The benefit of a jumbo IRA is that you receive more interest than you would otherwise receive for the same time period. The financial institution agrees to pay a higher rate for the same time period simply due to the size of the investment. This translates into more money for the same period of time. This increases the amount of retirement savings you have.
Disadvantage
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The disadvantage to a jumbo IRA is the fact that you must commit such a large amount of money with one financial institution. In order to get the benefit, you must decrease diversity in your investments. A jumbo IRA is still a bank CD or share certificate, so the interest rate may be too low to produce a high, sustained, yield capable of outpacing inflation.
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