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CD IRAs- what to do with them?

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  • CD IRAs- what to do with them?

    I recently did a backdoor Roth IRA. While trying to do the same for my spouse, I realized that we have two CD IRAs under her name. One of them matures in 2018 and another in 2020. Does this mean that she is exempt from opening another regular IRA and changing to a ROTH. If backdoor ROTH is not an option, what are the best options with the existing CD IRAs?

  • #2
    She is not "exempt" from the backdoor Roth maneuver, but she will owe tax on the conversion. If that is the case, she can either:

    • Convert the pre-tax IRAs to Roth IRAs and pay the tax

    • Roll the IRAs into her work 401k/403b, if allowed

    • Set up a solo-k with any self-employment income and roll the IRAs into the solo-k.

    Whether to cash out the CDs early and pay the penalty is another issue and depends on the facts and circumstances.
    Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087


    • #3
      I would assume that your CD IRAs are paying a very low interest rate. So, assuming you're looking at some type of investment vehicle with at least a slightly higher expected return than your CD IRAs, it probably makes sense to get out of your CD IRAs early.

      The typical early withdrawal penalty for a CD with a maturity of one year or less is three months' worth of interest. For a CD with a maturity of a year or more, the typical early withdrawal penalty equals six months' worth of interest. So, if you put pen to paper, you'll see that the penalties you'd be dealing with are not exactly exorbitant!