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CDs and IRAs
Old 03-27-2023, 08:50 AM   #1
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CDs and IRAs

I'm almost embarrassed to ask this, but what type of investments do you keep in your IRA?

We have a Rollover IRA that we set up at retirement that is simply in a money market (we "temporarily" parked it there and that was over 2 years ago).

I have cash that I want to use to set up a CD ladder, but I got to thinking about the Rollover IRA. Does anyone have their CDs within an IRA? Or does that even make sense? As I said, I have cash that I've been sitting on that needs to go to work but so does that IRA.

What would you put in your Rollover IRA?

I'd appreciate any thoughts and guidance you can offer.
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Old 03-27-2023, 08:51 AM   #2
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We keep our CD ladders in our traditional and Roth IRAs at our brokerage and have Treasury ladders in our brokerage account and HSA.
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Old 03-27-2023, 09:03 AM   #3
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We keep our CD ladders in our IRAs and have Treasury ladders in our brokerage account and HSA.
Thank you. Is there a specific reason one would keep their CD ladder in an IRA verses a brokerage account. Advantages or disadvantages?

I have put this off for so long that I've let it immobilize me.
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Old 03-27-2023, 09:08 AM   #4
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Another question to add:
I would think that I would have the maturing principal added back to my account. I'm trying to see any advantage of doing the Auto Roll b/c how would I know if the rates it would roll into would be acceptable to me?
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Old 03-27-2023, 09:24 AM   #5
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I put all fixed income in tax deferred accounts, followed by equities. This includes treasuries and CDs.

I want equities in tax free or after tax accounts, in that order. The goal is favor growth in these accounts vs tax deferred, with the hope of minimizing RMDs in the future.

Thereís nothing wrong with CDs in an IRA.
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Old 03-27-2023, 09:26 AM   #6
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Thank you. Is there a specific reason one would keep their CD ladder in an IRA verses a brokerage account. Advantages or disadvantages?

I have put this off for so long that I've let it immobilize me.
We have had most of our funds in IRAs, so long ago we started setting up the ladders initially to fund 72(t) needs and now with an eye to upcoming RMDs.

We prefer Treasurys in accounts outside our IRAs because California does not tax that interest; it does tax ordinary interest income from CDs.
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Old 03-27-2023, 09:35 AM   #7
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I've been buying credit union CD's in my Roth and Traditional IRA for years and just recently opened a brokerage account to do the same. In my case there was no reason to keep the Rollover funds seperate that I could find and and now they are just part of my Traditional IRA.
Buying FDIC insured CD's at Fidelity is super easy and I included a link to their FIDELITY100 offer to new customers which I used to sign up. I played around in the account for a while before I actually bought a small 1 month CD to see how it worked and everything went well. Some of their CD rates are over 5% right now so this is a good time to jump in and they don't charge a fee for new issue CD's which is all I buy.
If interested here is their signup link to get $100 wheh you deposit $50.

https://www.fidelity.com/go/starter-pack
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Old 03-27-2023, 09:46 AM   #8
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Thank you. Is there a specific reason one would keep their CD ladder in an IRA verses a brokerage account. Advantages or disadvantages?

I have put this off for so long that I've let it immobilize me.
FWIW our IRAs are also brokerage accounts.
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Old 03-27-2023, 09:53 AM   #9
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...What would you put in your Rollover IRA?
...
I bought TIPS within my rollover IRA because otherwise apparently a person needs to pay taxes on their value increase each year even if the money is still in the TIPS.

My intention is to have Treasuries in the rollover IRA as I rebalance my asset allocation and then my IRA will have a mixture of target-year retirement funds (the original contents of it, having rolled over from employer 401ks in the past), equities, TIPS, and now Treasuries.

I do also have Treasuries in my taxable account, but that was because I sold my house last year and was DCA'ing the money into equities (but now I've decided to use the remainder of the Treasuries to pay off my condo mortgage, though that will cause my AA to get all skewed too much toward equities).
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Old 03-27-2023, 09:55 AM   #10
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I'm almost embarrassed to ask this, but what type of investments do you keep in your IRA?
I consider my IRA as part of my overall investments. All of my investments are with a broker (Charles Schwab in my case): I have a brokerage account, a Roth IRA and a Traditional IRA. I do have CDs in both my traditional and Roth accounts. But I also have stock and bond ETFs in both (including TIPs).

You may want to read a book by Rick Ferri, All About Asset Allocation. You can usually find it at your local library. He writes about how to divide your assets between different accounts, and what type of investments belong in each (called asset location).

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Old 03-27-2023, 09:57 AM   #11
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We prefer Treasurys in accounts outside our IRAs because California does not tax that interest; it does tax ordinary interest income from CDs.
Oh I hadn't thought about that, that is a good point.
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Old 03-27-2023, 09:57 AM   #12
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Thank you all. This is helping me start to deconstruct what I've made into being too big of a deal.
Our brokerage account is with Fidelity b/c that is where mega corp had us. We've been happy with them so far and I'm actually thinking of moving our credit union money over. I have a high cash savings account which is dumb, but we've sat on that cash b/c of some planned renovations.

I have a fair amount of cash I need to park. Would it make more sense to build a CD ladder (and for how long?) or to simply buy a shorter term CD or maybe a 6 month and a one year one?
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Old 03-27-2023, 10:01 AM   #13
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I consider my IRA as part of my overall investments. All of my investments are with a broker (Charles Schwab in my case): I have a brokerage account, a Roth IRA and a Traditional IRA. I do have CDs in both my traditional and Roth accounts. But I also have stock and bond ETFs in both (including TIPs).

You may want to read a book by Rick Ferri, All About Asset Allocation. You can usually find it at your local library. He writes about how to divide your assets between different accounts, and what type of investments belong in each (called asset location).

- Rita
Thank you! I'll take a look at that. It sounds like it would be helpful. I'm realizing right now that I've got way too much on my plate, too many responsibilities these past 3 years and I've let things just ride. I used to love to do this stuff when we were building wealth. But now in this new phase of retirement, I feel a bit overwhelmed. I need to keep it as simple as possible.
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Old 03-27-2023, 10:03 AM   #14
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I put all fixed income in tax deferred accounts, followed by equities. This includes treasuries and CDs.

I want equities in tax free or after tax accounts, in that order. The goal is favor growth in these accounts vs tax deferred, with the hope of minimizing RMDs in the future.

Thereís nothing wrong with CDs in an IRA.
That is helpful, thank you.
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Old 03-27-2023, 10:04 AM   #15
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I have a fair amount of cash I need to park. Would it make more sense to build a CD ladder (and for how long?) or to simply buy a shorter term CD or maybe a 6 month and a one year one?
It depends on when you need the money. Match your assets to your upcoming liabilities. That will identify one rung in your CD ladder.

If you don't need or want the rest of the cash for anything in particular you hold CDs bought through Fidelity in a CD Ladder - they probably have an online tool that can suggest how much in each rung and how long to hold. With interest rates higher right now, going out 3-5 years wouldn't be a problem. You can liquidate a CD on any rung in your ladder if you need to - but with an IRA you probably aren't taking money from the account, so holding until maturity would be your goal unless you want to invest in stocks or bonds (index funds or index ETFs).

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Old 03-27-2023, 10:09 AM   #16
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It depends on when you need the money. Match your assets to your upcoming liabilities. That will identify one rung in your CD ladder.

If you don't need or want the rest of the cash for anything in particular you hold CDs bought through Fidelity in a CD Ladder - they probably have an online tool that can suggest how much in each rung and how long to hold. With interest rates higher right now, going out 3-5 years wouldn't be a problem. You can liquidate a CD on any rung in your ladder if you need to - but with an IRA you probably aren't taking money from the account, so holding until maturity would be your goal unless you want to invest in stocks or bonds (index funds or index ETFs).

- Rita
Yes, you are right. I'm trying to project ahead with our bigger cash needs. Right now we aren't withdrawing anything. But we potentially will need cash available on a major remodeling (or rebuilding) project that we're considering. I'll go back to the Fidelity website. It is very instructive. I just needed some non-Fidelity input here Just trying to break this up into manageable steps so I don't get overwhelmed and say "I'll get back to it" like I've been doing. And with CD rates so much better I know this is the time to do it.
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Old 03-27-2023, 10:23 AM   #17
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Dumb question: How do RMDs work in an IRA that is invested exclusively in CDs? (Wow, that's a lot of acronyms!) Are there any early withdrawal penalties associated with RMDs in that situation?
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Old 03-27-2023, 10:41 AM   #18
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Dumb question: How do RMDs work in an IRA that is invested exclusively in CDs? (Wow, that's a lot of acronyms!) Are there any early withdrawal penalties associated with RMDs in that situation?

RMDs are based on the IRA account balance, not on the investments.

Itís your job to make sure that you can withdraw the required amount each year. You bring up a good point: itís important to make sure that money isnít locked up. This is where a CD/Treasury/Bond ladder could be helpful.
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Old 03-27-2023, 10:59 AM   #19
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I'm almost embarrassed to ask this, but what type of investments do you keep in your IRA?

We have a Rollover IRA that we set up at retirement that is simply in a money market (we "temporarily" parked it there and that was over 2 years ago).

I have cash that I want to use to set up a CD ladder, but I got to thinking about the Rollover IRA. Does anyone have their CDs within an IRA? Or does that even make sense? As I said, I have cash that I've been sitting on that needs to go to work but so does that IRA.

What would you put in your Rollover IRA?

I'd appreciate any thoughts and guidance you can offer.
All withdraws from a traditional IRA (incluing rollover IRA's) come out as ordinary income. This suggest putting assets which have no tax advantages (such as CD's and other taxable fixed income) in this bucket.

Stocks (or equity funds) have several tax advantages: First, they are subject to long term capital gains rates on gains which are lower than ordinary income rates. Second, they get a step up in basis upon death, which can be very beneficial to your beneficiaries. Thus, these are typically better to have in normal (taxable) accounts. Another factor here would be to emphasize stocks or stock funds with good qualified dividends, as these also get the lower LTCG/Qualified Div tax rates.

Roth's provide the ultimate in terms of - no taxes on any withdraw. So, if you could pick what assets to put there, it would be assets that have the best risk/reward ratio for good growth. The issue with ROTH holdings is that (at least for me), they are precious and small compared to the other two categories. Because of this, I am always in a quandary as to what to use my Roth for..."safe" stocks/funds or the biggest income producers?
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Old 03-27-2023, 11:04 AM   #20
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Dumb question: How do RMDs work in an IRA that is invested exclusively in CDs? (Wow, that's a lot of acronyms!) Are there any early withdrawal penalties associated with RMDs in that situation?
Our IRAs are not exclusively invested in CD ladders, but a big chunk is.

For the past few years weíve tried to get a general idea of what DHís RMDs will be once he starts in a couple of years.

We have a base amount laddered in CDs for a few years, maturing when needed. Admittedly we didnít always get the best rates but have done our best.

We can satisfy the RMD from other holdings if we need to.
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