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Financial Planning / Foolish 401(k)s

URL:  http://boards.fool.com/yes-its-a-traditional-ira-in-that-the-custodian-29684775.aspx

Subject:  Re: 401K to CD / IRA? Date:  11/22/2011  10:57 PM
Author:  pauleckler Number:  24797 of 25318

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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