What Choices Do I Have When My Roth IRA CD Matures?

By Dave Guilford

  • Overview

    When an investor's Roth IRA CD matures, he has many choices of other CDs and even alternate investments. It is best not to allow funds to accumulate in cash within an IRA, as cash doesn't grow and therefore defeats the purpose of the tax deferral on income and capital gains. Depending on current interest rates, an investor may be better served by investing in an equity or money market mutual fund to accelerate the growth of the account. Since retirement is a long-term goal for the majority of investors, other low risk (but not necessarily insured) investments may make better financial sense than a bank CD.
  • Significance

    A vast percentage of the daily stock market volume is trading within the framework of retirement accounts, and Roth IRAs are among the most popular options. Since its inception in 1997, the Roth IRA has gained in popularity due primarily to its more liberal premature distribution regulations. Where a traditional IRA only allows distributions after age 59.5, the Roth IRA makes allowances for early withdrawals with no tax penalties.
  • Function

    CDs are time deposits that pay varying rates of interest depending on the CD amount and term. Banks charge an interest penalty for CDs that are liquidated prematurely. When a CD is purchased inside a retirement account such as a Roth IRA, the interest income earned is tax deferred.


  • Types

    The types of investments available to Roth IRA holders are virtually unlimited. When a CD matures inside a Roth IRA, the account holder has several choices: Roll the CD over--simply buy another CD at the current interest rate and wait for it to mature. Money Market Mutual Fund--an extremely low-risk option that often earns slightly better interest income than a CD. Bonds or Bond Mutual Funds--depending upon the rating of the bond, bonds and bond mutual funds provide very conservative (and sometimes even insured) interest income. Equity Mutual Fund--stock mutual funds can be found for every investment goal and preference, from income-producing dividend stocks to highly volatile small cap growth stocks. Individual Stocks--purchasing individual stocks carries a higher degree of risk but offers greater upside potential. Real Estate and other Exotic Investments--if the account holder owns a Self-Directed Roth IRA, he can invest in real estate, discount paper and private companies.
  • Considerations

    Unless retirement is imminent, investors should consider that many other investments offer better returns than CDs, some with very limited risk. In a low-interest rate environment, it is often difficult for CD rates to surpass annual inflation rates.
  • Expert Insight

    Roth IRAs make an early withdrawal provision available to first-time home buyers. The definition of a first-time buyer is any Roth IRA account holder, their spouse or their direct descendant who hasn't owned a home in the previous 24 months. When a Roth IRA CD matures, it might make sense to buy a house with the money.
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