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Overview
Transferring an IRA CD more than once a year is not only possible, sometimes it makes good financial sense to do so. Although there are many rules and regulations governing individual retirement accounts, and individual banks charge interest penalties for early withdrawals of certificates of deposit, there is no need to violate any regulations or incur any penalties as long as the account holder structures the transfer properly. There are no federal limits on the number of times an IRA and the assets within it may be transferred.
Function
Individual retirement accounts provide a framework for investors to save for retirement at an accelerated rate by deferring any taxes on investment income or capital gains until the funds are distributed at retirement. Certificates of deposit are time deposits placed in a bank that pay varying rates of interest depending upon the amount of money invested and the length of time before the CD matures. Interest penalties are charged if all or part of a CD is liquidated prior to the maturity date.
Types
The most common types of IRAs are the traditional IRA, the Roth IRA, and the self-directed IRA. The two types of CDs are regular and jumbo. Jumbo CDs generally begin at the $100,000 level, and regular CDs are any amount below that.
Time Frame
Since CDs are time deposits, an investor must be careful not to make any moves during the accumulation term of the CD. Once the CD reaches maturity, the investor can transfer the money with no penalty. CD maturities range from 1 month to 5 years. Occasionally, an investor will have a CD in his IRA that matures, and the investor finds another bank offering a higher interest rate on CDs. The investor can transfer his IRA to the new bank and buy the higher-interest CD. If the CD matures in 3 months and the investor finds another bank paying even higher interest, he can transfer the IRA again.
Theoretically, since the minimum duration of a CD is 1 month, an investor could transfer his IRA CD 12 times per year. Practically speaking, though, this would be impossible because it does not factor in the time it takes for an IRA transfer to take place between custodians (generally 2 to 3 weeks).
Considerations
If an investor has more than one CD in his IRA at a time, he is allowed to transfer any CDs that mature without affecting the remaining CDs in his IRA. The investor just needs to indicate on the IRA transfer form that it is a partial transfer and the amount he wants transferred.
Expert Insight
Laddering CDs is an effective method of CD investing, and more so within an IRA. By staggering the maturity dates of a group of CDs, an investor can maximize his return on investment because one or more of his CDs is always at or near maturity, and he can lock in the best current interest rates.
