Can I Pass the Money That I Have on My Roth IRA to a CD?
There are two ways you could use Roth individual retirement account (IRA) money to purchase a certificate of deposit (CD). You can make a withdrawal (also called taking a distribution) from your account and purchase the CD. Or you could instruct your Roth IRA trustee to purchase a CD to hold inside your account. The first option exposes you to significant taxes and penalties. The second allows you to accumulate tax-free earnings on your deposit.
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Roth IRA Function
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The federal government established Roth IRAs to help workers save for retirement, and IRA rules are established and enforced by the IRS. An IRA is not a financial product associated with any one bank, agent or brokerage firm. Instead, you can think of your Roth IRA as a large tote bag for retirement investments. You can use cash you contribute to your account to purchase assets, which you also can sell to purchase different assets.
IRA Trustees
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The Roth IRA trustee that maintains your account determines the types of investments you can make. For instance, if you open a Roth IRA with a brokerage firm, you can purchase stocks, bonds and shares in exchange-traded funds. Generally, banks and credit unions that offer Roth IRAs allow you to purchase money market accounts and CDs. Banks and credit unions are frequently insured by the Federal Deposit Insurance Corporation (FDIC), which means your account is protected if the bank fails.
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Buying and Selling Assets
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If your current IRA trustee offers a CD, you can use funds inside your account to purchase it. If you have already exhausted your allowable IRA contribution for the year and don't have any cash in your account, you can instruct your trustee to liquidate investments or deposits currently in your account and use the cash to purchase CDs. There is no tax penalty for making this transaction; however, you should consult with a financial adviser to determine whether you would lose money on your investment. You also should find out what fees are associated with liquidating assets.
Account Transfers
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If you want to use your Roth IRA to purchase a CD but are not happy with your current trustee's options, you can make a tax-free and penalty-free account transfer to a new trustee. Research which Roth IRA trustee has the CD you want, and open a new account with that institution. Instruct your current trustee to transfer all or a portion of your account's assets to the new account. This process is called trustee-to-trustee transfer. In this transaction, your bank electronically moves money to your new account, and money never passes through your hands.
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