A great retirement investing alternative that not many people have heard about is the IRA CD. That would be a CD inside of a Roth or Traditional IRA. With this approach, you get the security of a CD with the tax advantages of an IRA.
As a reminder, an IRA is a tax-advantaged retirement account that you use to hold investments, like a stock, bond, or in this case, a CD. A CD is a certificate of deposit, a deposit product with a fixed term and rate. They are also FDIC insured.
Discover Bank was one of the first banks I knew to offer an IRA CD. Their IRA CDs range anywhere from 3 months to 10 years. The minimum deposit is $2,500.
- Discover Bank 12-month IRA CD
- All Discover Bank IRA CDs
So, who should consider an IRA CD? Ultimately, it would be best if you made your investment decisions. There is no one-size fits all investment plan. But generally speaking, here’s who should consider an IRA CD:
- CD investors that want to pay less in taxes.
- Retirement investors who want an alternative to their money market fund to meet their cash asset-class requirements.
- Beginning investors who want to start an IRA but don’t know about other investment asset classes.
I have faith in the American business for the long term. For this reason, and being the young guy that I am, 🙂 I stay with domestic stocks for a large percentage of my portfolio.
But with the economy still on shaky ground and some discussing another possible market crash, some investors may be looking for a safe, secure place to continue investing for retirement.
This approach makes sense for a lot of people. If you’re looking to preserve capital (i.e., keep your retirement money safe), the typical places to turn include a money market fund within your retirement account or a simple CD or savings account.
Money Market Funds don’t have FDIC Insurance or much of a return on your money; CDs outside of an IRA cannot achieve extra tax savings. The IRA CD brings them both together. Learn more about IRA CDs.
About Philip Taylor, CPA
