I Am New To IRA CD

hiyield | Mar 5, 2024 | 41 posts since 2017

I will open a new IRA CD at a bank and fund it with my pension lump sum.

I am comfortable with a regular CD (many thanks to Ken Tumin and the depositaccounts.com contributors) but have never owned an IRA CD.

I understand, I can do a transfer by a check during a 60-day period once a year.

1.Does trustee-to-trustee transfer between IRA accounts have the same maximum limitations as an ACH or wire transfer?

2. What are the other important things I have to ask before opening an IRA CD at a bank or union?

Post an answer

Answers

MAKNYC | Mar 5, 2024 | 323 posts since 2015

While my situation was different and about 5 years ago (so I may not recall all the exact details), I think my experience might be helpful. I had a pre-existing IRA @ Fidelity that was previously funded with distributions from 2 or 3 of my workplace 401k plans when I changed employers. I don’t recall for sure how those funds were received by Fidelity, but I’m pretty sure at least the more recent transfer in was by check. But the transaction that would be most relevant to your question…I decided to move some of those Fidelity IRA funds to a credit union to take advantage of a 2.5 year step CD promo they had at the time. It was Keesler Federal CU and they were not local to where I lived. I was very surprised at how antiquated the process was. An electronic funds transfer was not an option…I don’t recall if it was a Fidelity issue, KFCU, or convention. So Fidelity had to mail them a check. That had to be done after I dealt with all the account paperwork, some of which was hard copy and I do think I had to mail that in to KFCU. While waiting for the check to be received by KFCU they either lowered the rate or canceled the CD promo. But they agreed to honor the original terms if they received the funds by a certain date….which they did. When the CD matured I had KFCU send the proceeds back to Fidelity for deposit back into the original funding IRA. This took over a week as I kept calling both Fidelity and KFCU to check the status. Eventually the funds were received by Fidelity and the deposit processed. But between opening and closing the CU IRA, my funds were in transit and earning interest for the FI’s and not me. So unless I was presented with an incredible premium rate for an extended duration I vowed to never go thru this again. Having the money at a firm like Fidelity provides much more in the way of options in terms of selecting preferred investments vs. chasing a specific opportunity. With standard taxable accounts the depositor typically can control the process and it has more efficient means to transfer funds than my experience with the IRA did.

njs | Mar 5, 2024 | 71 posts since 2019

When I retired, the portion of my pension which consisted of pre tax contributions and intrest I took as a lump. The rest I receive monthly. I rolled over the lump to a traditional ira. Some of it I converted to a roth. The financial institutions handled the transactions after I completed the forms. You may want to consider that I believe the max insurance per bank is 250k. Also depending on your age you should ask about the rules for RMDs.

SamFam | Mar 6, 2024 | 34 posts since 2020

It is best to do a trustee to trustee transfer. You will fill out paperwork with the bank/credit union that you want the funds to go, and they will take care of the rest. Keep in mind that IRA's are only insured up to $250K regardless of how many beneficiaries you have.

racecar | Mar 5, 2024 | 616 posts since 2014

You're asking for all the rules to an IRA, there's too many to post, you'll need to research them or ask your credit union. But a few of them to be aware of:
(1) There's a limit as to how much you can contribute each year to an IRA CD (doesn't matter if it's Traditional IRA or Roth). This year it's $7000 total max ($8000 if you're 55 or over). So regardless of how much your pension lump sum is, or how much $$ you have on hand, that's still the max per year, for this year. The IRS is sent records each time you open an IRA account so they will know if you try to contribute more, and if they catch you (which they most likely will) you'll have to pay a penalty on anything over that, and lose more in the end if you try to contribute more than the yearly max each year. Again, this year it's $7,000 max ($8,000 if 55 or over).

(2) Also, you're not allowed to open an IRA CD unless you have "earned income" (money from working earned in the YEAR YOU OPEN YOUR IRA, not money from interest, investments or from pensions for previous work in other years) that at least match the amount you put to your IRA that year. In other words, if you're fully retired, and earn no money from working in 2024, you cannot open a new IRA in 2024 (pension $ may be money from working, but it's for working in previous years, not new money earned from working in the current year). If you want to open an IRA account for $5,000 in 2024, then you must earn $5,000 from working in 2024 before the year is up. You can look up the IRS' definition of "earned income" online, but generally it's money from actually working that is earned in the year you open the IRA account. You could always try to open one anyway and see if the IRS catches you, but all IRA CDs have to be reported to the IRS, so I wouldn't chance it.

If you pass those hurdles, familiarize yourself with the difference between a Traditional IRA (where you get a tax break now for opening it, but have to pay taxes later, and has many more rules like mandatory distributions, etc) or a Roth IRA (where you get no tax break now, but you don't have to pay taxes later on, even on the interest from it, and has less rules and no mandatory distributions).

There are too many rules to post here, but make sure you at least you're eligible to contribute to an IRA still -- and be aware of the yearly maximum above.

If you still qualify for an IRA then talk to your bank or credit union about the transfer procedure/options.

happyharold4 | Mar 7, 2024 | 388 posts since 2022

Place the funds in several Ira's with different FI's. Ask each if you are able to withdraw above your RMD amount without incurring a penalty. Ally Bank for example will only allow the amount of the RMD for their account if funds are locked in a CD. But others such as Synchrony Bank and Nasa CU allow you to add all your RMD's and take the total amount from their account. Actually at Synchrony in your locked CD you can take any amount out if titled RMD withdrawal. Also when transferring funds in Ira's to to another FI, be sure to use Wire transfer---I just learned this the hard way as I lost 20 days interest, { on a large sum }, by using regular transfer method as Synchrony uses snail mail and takes their good old time no matter how hard you try and push them.

choice1 | Mar 5, 2024 | 370 posts since 2023

Talk about starting small…during employment you never opened an IRA and now want to transfer or…(you need to learn the difference…don’t want to screw up on a lump sum) to a FI IRA. Then there is ins limitations. I think I made my point.

hiyield | Mar 6, 2024 | 41 posts since 2017

I have learned so far.
1. Take into acount the very slow trustee-to-trustee transfers
2. Don't go over $250,000 for the same type account at the same financial institution.
3. Prepare for unexpected fees and bad experience when I close my IRA account and ask to transfer money somewhere else.
Thank you all for sharing.

njs | Mar 6, 2024 | 71 posts since 2019

Direct transfers do take a few days. It's not a big deal. I always call the sending institution during the grace period to make sure they received the paperwork. You don't want to get stuck with a cd renewal you didn't want. I have never been charged a fee to transfer or convert an ira. I do see that GTE has a charge for that, I believe.

hiyield | May 21, 2024 | 41 posts since 2017

As today, I have one IRA 5-year CD with a CU and another 5-year IRA CD with Fidelity.

1. Fidelity is a place where my company had my retirement fund and I have already an IRA account. After short conversation and paperwork, they distributed Custodian-to-Custodian to a new IRA account in a couple days period. With a couple clicks I bought a 5-year brokered CD. Because I bought it from my IRA account it will be tax-treated as an IRA CD.

2. I opened a new regular savings account with a CU of my choice. I opened a new IRA account. I submitted paperwork for a Custodian-to Custodian transfer. After 14 days, the fund was transferred and a 5-year IRA CD was opened.

3. All representatives confirmed the fund distributions will be defined as Custodian-to-Custodian. Will see if this is true in the 2025 tax season,

bobert456 | May 23, 2024 | 187 posts since 2022

$250K is not for SAME TYPE OF ACCOUNT. BOTH the IRA and ROTH are combined under the 250K cap on IRA accounts. They are combined for insurance purposes.

The financial institution, product, and APY (Annual Percentage Yield) data displayed on this website is gathered from various sources and may not reflect all of the offers available in your region. Although we strive to provide the most accurate data possible, we cannot guarantee its accuracy. The content displayed is for general information purposes only; always verify account details and availability with the financial institution before opening an account. Contact [email protected] to report inaccurate info or to request offers be included in this website. We are not affiliated with the financial institutions included in this website.