How to Buy a CD in an IRA Account

A CD can be a safe way to invest your IRA funds.

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An individual retirement account is pretty flexible in terms of the investments you can purchase with it. Most stocks, bonds, mutual funds and certificates of deposit are available for use in an IRA. Whether or not you can buy a particular CD in your IRA depends more on the capabilities of your financial services firm than the investment restrictions of an IRA. However, since an IRA is a tax-advantaged account, prematurely withdrawing money from a CD in an IRA could result in multiple levels of taxation or penalties.

Step 1

Contact your bank or financial services firm. Verify that it offers both IRA accounts and CDs for IRAs. Most if not all major firms provide both services.

Step 2

Open your IRA account. Firms will need to know your name, address, date of birth, social security number, investment experience and chosen beneficiaries, at a bare minimum, to open your account. You'll also have to make a deposit to fund the account.

Step 3

Review the list of available CDs. Some banks might only offer bank-issued CDs as investments, while other firms, particular the major brokerage houses, might offer a vast additional inventory of CDs from across the country. Since the financial services industry is a competitive field, some banks may offer higher rates on their own CDs, rather than those from other banks. You might also be able to find CDs with higher rates for IRA accounts, or negotiate a higher rate if you are a long-time customer.

Step 4

Note the maturity date and early withdrawal penalties of your CD. CDs typically mature anywhere from three months to one year after the date of purchase, but some can have longer or shorter terms. Most bank CDs come with a penalty of a few months of interest if you sell them before they mature. Secondary CDs, such as those offered by brokerage houses, might charge commissions to buy or sell a CD.

Step 5

Authorize your financial services rep to buy your chosen CD on your behalf.

Step 6

Keep the money in your IRA even after it matures or you sell it. The IRS charges a 10 percent penalty if you take money out of your IRA before age 59 1/2, even if it comes from the proceeds of a CD. You'll also owe income tax on any amount you withdraw.