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Brokered CDS within an IRA
02-06-2019, 06:29 AM
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#1
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Recycles dryer sheets
Join Date: Nov 2017
Location: St. Petersburg
Posts: 134
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Brokered CDS within an IRA
I will be retiring end of March and 30 days later plan to move my money to Vanguard. Can someone please explain to me in extremely simple terms (read that as I do not have a head for investing) about purchasing brokered CDs within an IRA. For example, let’s say, I purchase an 18 month CD with money in a Vanguard money market account. Once the 18 months are up, where does the principal and interest go if I do not want it renewed? I know it must stay within the IRA. Any clarification would be appreciated.
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02-06-2019, 06:44 AM
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#2
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Thinks s/he gets paid by the post
Join Date: Mar 2012
Posts: 3,931
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Goes into your cash/sweep account...or whatever fund (inside your IRA) that is tied to with your broker. Likely the same money market fund you are initially taking the cash from to purchase the CD.
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02-06-2019, 07:30 AM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2017
Location: City
Posts: 10,337
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At Schwab my bond guy emails and calls just prior to maturity and asks what I want to do. If I do nothing it gets swept.
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02-06-2019, 08:04 AM
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#4
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Thinks s/he gets paid by the post
Join Date: Dec 2015
Posts: 1,166
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I don't believe you can "reinvest" income in a brokered CD - at least at Vanguard. Dividends are paid per the term of the CD (eg: every month, every 6 months, etc) and deposited into your cash settlement fund.
Far as I know, VG brokerage requires the cash settlement fund to be Vanguard Federal Money Market. You can also open up another (eg: Vanguard Prime MM) and do sell/buy between them, but the "principal" amount of your CD will wind up back in your Federal Money Market account at maturity, with dividends being paid into Fed Money Market on the schedule called for by the CD..
Hope that helps..
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02-06-2019, 08:07 AM
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#5
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Thinks s/he gets paid by the post
Join Date: Dec 2015
Posts: 1,166
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PS - brokered CD rates at Vanguard are not great at the moment. There are much better deals to be had at some of the popular Credit Unions mentioned frequently here (eg: NASA, Andrews, Navy). Navy, for instance, has a 3.75% (!) 40-month IRA CD available. It's a bit tougher to qualify (must be military, a veteran or have a family member who is - including deceased family members like father) but best rate I know of at the moment. Compare that to 2.85% for 36 months which is the highest brokered CD I saw yesterday at VG..
CU CDs are insured via the NCUA..very similar to FDIC with similar insurance amounts. Brokered CDs are typically FDIC insured. No real net difference IMHO..
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02-06-2019, 12:16 PM
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#6
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Thinks s/he gets paid by the post
Join Date: Feb 2014
Location: Syracuse
Posts: 3,501
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As others said: Your sweep account. I do not believe you will have an option to automatically renew, but if you want another CD buy a new one with the redemption money's.
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