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Author: Ronbert Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 25318  
Subject: 401K to CD / IRA? Date: 11/22/2011 7:49 PM
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Based upon response advice in an earlier post, I decided to roll over my federal 401K into a traditional IRA and take about $20K out of my $179K balance to live on while I am unemployed. I looked at the law and the IRS advises a traditional IRA is available from a bank, savings and loan, or federally insured credit union.
I went into the Bank of America to roll my 401K into a traditional IRA but they offered a "CD / IRA" which had a specified term. The representative said she felt this was the traditional IRA.

Is this a traditional IRA?
If not, how do I get one?

I just passed the California bar after being unemployed for more than a year but it may take several months to find a job and I am almost out of cash (so I need to tap the 401K).
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Author: CABob Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24796 of 25318
Subject: Re: 401K to CD / IRA? Date: 11/22/2011 10:55 PM
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I went into the Bank of America to roll my 401K into a traditional IRA but they offered a "CD / IRA" which had a specified term. The representative said she felt this was the traditional IRA.

Is this a traditional IRA?

Hopefully the rep knew whether it was an IRA or not. It sounds as if this is one of several types of accounts that fall under the IRA umbrella. It sounds like it is specifically invested in a CD with some interest rate and term.
The question is what do you want to invest the funds in? An IRA can be held by the financial institutions you were told about as well as a brokerage or mutual fund company. After the money is in the account it can then be invested in the investment of choice.
If you are interested in a savings account, money market account, or CD it is best held at a bank or similar institution.
If you are interested in investing in mutual funds you should look at mutual fund companies.
If you are interested in investing in individual stocks or ETFs you should probably look at brokerages.
Of course in real life it isn't quite that cut and dried since banks often provide brokerage services, mutual fund companies can also provide brokerage services and will often include mutual funds, money market funds, CDs and bonds.

Bob

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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24797 of 25318
Subject: Re: 401K to CD / IRA? Date: 11/22/2011 10:57 PM
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Yes, its a Traditional IRA in that the custodian agrees to comply with the IRA rules.

The IRA you describe is typical of those offered by banks and sometimes credit unions. They are like CDs and have a fixed maturity date and usually an agreed to interest rate for the period of the CD. When one matures you buy another or you can transfer it to an IRA account at another institution. And usually you will pay a penalty if your cash one before its maturity date (often something like one quarter's interest).

CD interest rates are quite low these days. Bankrate.com indicates 1.9% is about the best you can do for a 5 yr IRA CD these days. But if you went to a discount broker for your IRA, you could get 5.0% in a typical utility stock like Ameren (ticker AEE), or 7+% mostly fed tax free in closed end bond funds like NQS or BLE. These are somewhat higher risk in that unlike the CD, their share price can change. Also you will pay discount broker commissions (typically $8 these days) to buy and sell them. But this is typical of the choices you can make with your IRA.

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Author: Fuskie Big funky green star, 20000 posts Top Favorite Fools Old School Fool Ticker Guide SC1 Red Winner of the 2010 Rule Breakers Challenge Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24798 of 25318
Subject: Re: 401K to CD / IRA? Date: 11/23/2011 3:06 AM
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Since when does the IRS recommend you open IRAs with banks?

Fuskie
Who recommends a discount broker such as Scottrade, Schwab or Fidelity...

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Author: CABob Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24799 of 25318
Subject: Re: 401K to CD / IRA? Date: 11/23/2011 12:38 PM
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Since when does the IRS recommend you open IRAs with banks?

Good point or question. I seriously doubt an actual recommendation of this type was made by the IRS.
The IRS provides the laws and regulations associated with an IRA, but, the choice is left to the individual.

Bob

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