Personal Finance and Investing

In your post, you are using a few terms that are confusing to me.

Here is where I am having difficulty;

1) You said "If you have a Retirement CD - IRA, SEP, Keogh".

2) You said "once you hit 59 1/2 you can change your account once a year."

3) Your second paragraph mentions specifics that are not applicable in all cases.



1) By this do you mean a CD held INSIDE an IRA account? Or are you using the term "Retirement CD" to refer to a long term CD?

It should be made clear that an IRA, a ROTH IRA, a SEP (Simplified Employee Pension, often called a "SEP IRA" ) and a Keogh Plan are simply ACCOUNTS and not the investment or invested security itself. They are completely separate. You can keep a cash balance in an IRA. It doesn't have to be invested in anything.

It may be the case that your local bank will offer IRA account services and ONLY offer CD's as an investment option, but the two are completely different entities. The only reason your bank may offer only CD's would be because they are not a registered securities dealer. If that is the case, you may want to seriously consider looking for a bank that DOES have that designation and can then offer a wider array of investment options.

2) This has me scratching my head. Do you mean that you can change the CD once a year? Or change the entire account?
There are absolutely no restrictions on making trades or changes of investments (with the exception of the use of Margin account procedures) in the IRS code regarding these types of accounts. You don't have to wait until you are 59 and a half before you are allowed to buy or sell ANY security, including CD's inside an IRA, and there are no restrictions on how many such changes you make during a calender year.

3) " I know that I can change my CD for a different one without penalty even if it is not due once a year" This is not always the case, as it depends on the type of CD. Some CD's are "Brokered CD's" and they can be bought and sold at will with no penalty at all. However, as a general rule, a CD is what's known as a "Time Deposit" as opposed to a "Demand Deposit" account. The bank or other financial institution who issued the CD has the right to place restrictions on early surrender because it is basically a contract between you and the bank. They give you a higher interest rate than they do on regular savings accounts because you agree to leave the money in place for a specific length of time. Generally however, the penalty amounts to a month or two (and up to 6, depending on the term of the note) months of interest and little more. At today's rates, that isn't really very much on a $1000.00 CD. The primary advantage to holding ANY security inside a tax deferred account is that you don't have to pay taxes on gains on an annual basis. This includes dividends, capital gains and interest payments, be they from bonds or CD's.


If you have an IRA at a bank and they are telling you that you can not make changes to your IRA account holdings before you are 59 1/2, they are LYING to you.

All this can be solved with the simple process of "Laddering". This allows the constant repurchase of a new CD periodically to take advantage of rates as they rise. If you have $12,000 for instance, you can ladder your CD's so that one is maturing each month. You take the settled proceeds and buy another CD out at the end of the ladder.