For a person who has worked for a number of years with a 401K, the concept of a ladder of IRA CDs sounds great. The question remains, how do I do it?
1. Limited options in 401K plans. Last I checked, 401K plans had very limited fixed-income options. The most common option, the intermediate-term bond index fund, has fallen on hard times. All is not lost, however. For those over a certain age (usually 59 1/2) and whose 401K plans allow, a transfer from the 401K to an IRA (such as Vanguard) may be an option. For those who are retired, or otherwise separated from the 401K employer, do an IRA rollover.
2. Once your desired fixed-income bond funds have been transferred to an IRA, you are free to do a "custodian-to-custodian" transfer of said bond funds to an IRA CD. Here on Ken's blog, find a CD which suits your fancy, then ask the new custodian to attend to the paperwork.
3. How much? Of half (50%) of the balance of the bond funds, the idea would be to transfer 20% of that 50% (i.e., 10%) the first year to a five-year IRA CD, 25% of the 50% the second, and so on. The concept would be to have roughly 50% in IRA CD five-year laddered CDs at the end of five years, and 50% in the intermediate-term bond fund.
4. Why not plop it all in the IRA CD ladder? You could certainly do this, but diversification is always wise. In addition, bond funds are easier to use for re-balancing into equities, should equities take a tumble. You might also find an outlier CD (say, a seven-year or ten-year) you really want to grab (happened to me, by the way), and it helps to have some "dry powder").
