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I am not sure this is the right message board, so please direct me to another board if appropriate. I have a ROTH IRA in the form of a CD in my credit union. It has just been sitting there for a few years and I finally decided to transfer it into my brokerage account with Etrade. They tell me they cannot transfer it "in kind" because it is a Roth CD, and that I must liquidate it, in order to transfer it into my Etrade account. It is about $6800. I am 64. Can someone tell me if this is correct - that they cannot transfer it as a Roth CD? And then if I have to liquidate it, I will have to pay income tax on it as ordinary income? Or what are my penalties for liquidating it early. By the way, the credit union does not charge me to liquidate it before it's CD maturity date -- I am just trying to figure out the tax consequences regarding early withdrawal and my age. Thanks!
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Footsox,

Things to check before doing anything.
1. What is the maturity date on the CD?
2. What is the interest rate you are getting on the CD.

With the CD held in the credit union, it will continue to earn interest until it reaches maturity.
If you have had it awhile and the interest rate is decent do not cash it in just to move it.
Interest rates are low now so buying a new CD in the brokerage will probably earn you a lot less interest.

Now for the tax question. If it is a Roth CD and you have had it open for awhile it will probably be tax free. Withdrawals from a Roth are tax free, if you have had the Roth Account at the Credit Union for 5 years. If it is not Tax free and you cash it out , You could roll the money into a Roth Account at the Brokerage Tax free.
Do you have other Roth accounts? Can move the Money there but again you will loose the potential interest moving forward.
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You likely cannot transfer the CD in-kind to a broker. A broker can only deal in brokered CDs, and your credit union CD is almost certainly not one that can be brokered.

However, it is quite possible to move the funds to a broker. You will need to break the CD - suffering any necessary early termination penalties - then have the funds sent to a Roth IRA at the broker. That might require setting up a Roth IRA savings or checking account at your credit union to facilitate the transfer.

One thing you didn't mention is if the account at Etrade is a Roth IRA. If it is not, transferring the funds to that account would be a withdrawal from your Roth IRA. That withdrawal may or may not be taxable, depending on how long you have and the Roth IRA. Since you are 64, you meet the age requirement for a tax-free withdrawal, but you also need to have had a Roth IRA for at least 5 years. It is unclear in your post if you also meet that requirement.

--Peter
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New CD's opened now are averaging 0.1% on a 1 year CD.
New CD's opened now are averaging 0.5% on a 5 year CD.

Not a good return at all. Depending on when you opened yours you could be getting from 2.0% or more , maybe up to 4.0% if you opened a 5 or more year CD 4-5 years ago.

See what you are presently earning per year. When it matures it will stop earning interest and then would be a good time to move it if you want out of the credit union.

Best of luck.
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Repost with more detail.

New CD's opened now are averaging 0.1% on a 1 year CD.
New CD's opened now are averaging 0.5% on a 5 year CD.
--- These are for Brokered CD's at a Brokerage.

New CD's at online banks and some Credit Unions are a little higher.
New CD's opened now are averaging 0.6% on a 1 year CD.
New CD's opened now are averaging 1.0% on a 5 year CD.

Not a good return at all. Depending on when you opened yours you could be getting from 2.0% or more , maybe up to 4.0% if you opened a 5 or more year CD 4-5 years ago.

See what you are presently earning per year. When it matures it will stop earning interest and then would be a good time to move it if you want out of the credit union.

Best of luck.
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They tell me they cannot transfer it "in kind" because it is a Roth CD, and that I must liquidate it, in order to transfer it into my Etrade account.

You should certainly read the other answers to your question.

One comment I might make is that you seem to be intending to push the money from your current account to an eTrade account. I have always found it better to notify the institution to which you wish to transfer the assets and have it pull the assets over. They have a greater incentive to get it right since they are receiving the assets, whereas the ending institution is losing those assets.

In almost every case, you do not want to receive a check payable to you as that might get you taxes due that are better avoided; i.e. you want a direct transfer from one IRA to another.
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footsox: "I have a ROTH IRA in the form of a CD in my credit union. It has just been sitting there for a few years and I finally decided to transfer it into my brokerage account with Etrade. They tell me they cannot transfer it "in kind" because it is a Roth CD, and that I must liquidate it, in order to transfer it into my Etrade account."

pteland has answered this question. It is unlikely that your credit union cd can be transferred in kind. I believe that the CU is telling you that you must liquidate the cd (convert the cd to a money market or savings account) and not liquidate the Roth IRA. There is a mechanism so that you can keep it in a Roth IRA.

"It is about $6800. I am 64. Can someone tell me if this is correct - that they cannot transfer it as a Roth CD? And then if I have to liquidate it, I will have to pay income tax on it as ordinary income?" If it stays in a /oth IRA no taxes will be due.

"Or what are my penalties for liquidating it early."

That depends on the terms of the cd.

"By the way, the credit union does not charge me to liquidate it before it's CD maturity date -- I am just trying to figure out the tax consequences regarding early withdrawal and my age."

It should be none if the money stays in a Roth IRA.

And I agree with whoever wrote, better to initiate a pull transaction with E-trade and avoid getting a check payable to you because of the time limits for a rollover and the frequency cap on rollovers.

Regards, JAFO
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Thanks for all the replies. OK. Here is more information. It is Etrade who is telling me they cannot transfer it as a Roth CD and I must liquidate it and receive it as cash. I am not sure about pulling or pushing the transfer -- I am trying to get the Roth CD from my credit union transferred into Etrade and Etrade is the one who initiates the transfer with the credit union. I have a ROTH IRA account at Etrade - I hold a few stocks within the ROTH IRA account number at Etrade. I was hoping to roll over this CD into the Roth account at Etrade and use the money to invest in more shares of stock.

I have had this as a Roth CD probably over 10 years, perhaps 15 years. It has reached maturity a few times and I believe it is a 3 year CD each time. When it reaches its maturity date, I have been allowing it to automatically renew for another 3 year term. The credit union has no penalty for closing it out before it reaches its maturity date -- I am worried about possible penalties because I would be cashing it out and it is a ROTH CD. (So, I guess I am only concerned with income tax penalties for taking it as cash when I am 64). Someone mentioned it is a tax free withdrawal because I am 64?? (I need an explanation for that - I thought I would have no tax consequences if I take Roth distributions if I am 70 and 1/2? or something?

OK. So, the amount of the Roth CD is $6869. The maturity date is 4/8/2023. - But my credit union will not charge a penalty if I close it out before that date. The APR is 2.2% If I have to liquidate it (and take it as cash) - then can I deposit that cash into my Roth account at Etrade? I am sure that is technically NOT a "roll-over" of the Roth IRA. I wanted to roll it over into my Roth account at Etrade, because I can certainly make more than 2.2% in buying some shares of stock.

I guess if I have to liquidate it (and receive it as cash), and there are no Roth penalties because I am 64, then is there any reason to deposit the cash into the ROTH account at Etrade? -- I also have a "normal" account at Etrade, and if cashing it out doesn't matter because of my age, then I can just put it into my normal Etrade account and invest it in more stocks(?). So, then, barring any Roth early withdrawal penalties, I would just have the consequences of taking the $6800 as income in this tax year? Gosh, sorry to be so confused. I appreciate your help.

Footsox
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I have a ROTH IRA in the form of a CD in my credit union.

Here’s the most important piece you need to understand — you have a CD from your credit union in a Roth IRA. Please read that again. Not understanding this piece is impacting everything else.

To do something else with this money or put it in a DIFFERENT Roth IRA, you need to cash it in. There is no other option. If you want to move the money to another Roth IRA, it needs to be done carefully and usually the receiving institution can provide the best instructions.
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I guess if I have to liquidate it (and receive it as cash),...

No different from selling a stock within an IRA. You would liquidate the CD and the Roth would receive the cash. Not a taxable event.

IP
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If I have to liquidate it (and take it as cash) - then can I deposit that cash into my Roth account at Etrade?

You do not want to receive it as cash. Unless you have enough earned income, you may not be able to put the cash into the Roth-IRA. You want to do a trustee-to-trustee transfer.
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Folks seem to be missing the point. OK stated that the Roth is 10 hrs old and OP is 64 years old. Liquidating the Roth will incur no taxes at all.

JK
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OCD roth is 10 years old

Original poster is 64.

Tax free.
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Hi guys, Thanks again. I have done some Googling. Since I am over 59.5 years old, and have held the ROTH CD for over 5 years, then me cashing out the Roth CD at the credit union is then a "qualified distribution" and I will not have to pay the 10% penalty. OK. I finally get that.
However, won't it count toward my gross income for this tax year?

If it does not count toward my gross income, then there is really no point in cashing it out and depositing it into my Roth IRA account at Etrade?? I think I am understanding that the income tax was paid when I originally put the money into a ROTH CD - right? So, I can then just cash it out and deposit it to my normal Etrade account?

Forgive me for my denseness. I was just trying to simplify my darn credit union accounts and this is kind of a straggler. My other Roth accounts are in Etrade, so I wanted to get them all in one place. Thanks again for your patience with me.

Footsox
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The APR is 2.2% If I have to liquidate it (and take it as cash) - then can I deposit that cash into my Roth account at Etrade? I am sure that is technically NOT a "roll-over" of the Roth IRA.

Sorry, you are confused. It would be a rollover, but not a trustee-to-trustee rollover - it would be a direct rollover, because you took possession of the money. You don't want to do that, because you can't do another one of those for an entire year. BTW - you need to stop calling the CD a "Roth CD" - you have a Roth IRA account at your CU. The current investment in the Roth IRA at your CU is the CD.

Tell the CU that you want to open a money market or savings account in the Roth IRA at the CU, then cash out the CD and the proceeds deposited into the new account in the Roth IRA at the CU. Have E-Trade contact the CU to take the cash (and any interest that may have accrued) and transfer it to E-Trade.

There, you've done a trustee to trustee rollover from your CU Roth IRA to your E-Trade Roth IRA.

As previously mentioned, you DO NOT want to cash out the CD, put it in your personal checking account and then send a check to E-Trade. That would be a direct rollover, and you won't be able to do another one of those for at least a year. So to keep your options open, you want to do a trustee-to-trustee rollover whenever possible.

If you've already cashed out the CD at the CU and had it put into your personal account, then you do need to write a check to E-Trade as soon as possible for the amount that was deposited into your account. You only have 60 days to get the money deposited into the Roth IRA at E-Trade for it to be a proper direct rollover. Then, for the next year, you are not allowed to take the same action - so DO NOT take any money out of any IRA that you own unless you actually want that money to remain outside of an IRA.

I guess if I have to liquidate it (and receive it as cash), and there are no Roth penalties because I am 64, then is there any reason to deposit the cash into the ROTH account at Etrade? -- I also have a "normal" account at Etrade, and if cashing it out doesn't matter because of my age, then I can just put it into my normal Etrade account and invest it in more stocks(?). So, then, barring any Roth early withdrawal penalties, I would just have the consequences of taking the $6800 as income in this tax year? Gosh, sorry to be so confused. I appreciate your help.

Well, if you want to cash it out and put the money into your checking account, you have the option of depositing it into either your Roth IRA at E-Trade or your taxable account at E-Trade. Because the money it currently in a Roth IRA at your CU, and you've had a Roth IRA account (invested in this CD) for more than 5 years, and you are 64, you would be making a qualified withdrawal from your Roth IRA, and there would be no taxes or penalties due. However, if you put the money into your taxable account, you will owe taxes on any future capital gains, dividends, etc. If you deposit into the Roth IRA, you will continue to shelter the future capital gains, dividends, etc. So, if you want to save on taxes, it's more advantageous from a tax perspective to deposit it into the Roth IRA.

For those who were thinking that the OP could not deposit the money into any IRA unless s/he was working - that's not correct. You are always allowed to roll it from one type of an IRA account (Roth or Traditional) to another IRA account of the same type without any tax consequences. That's called a rollover, and does not mean that you are making a new contribution, which is what requires that you have some type of income from work. Whenever possible, you should have the trustees transfer the money directly. It's only when you roll money from a Traditional account to a Roth account that you will incur tax consequences.

AJ
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If it does not count toward my gross income, then there is really no point in cashing it out and depositing it into my Roth IRA account at Etrade?? I think I am understanding that the income tax was paid when I originally put the money into a ROTH CD - right? So, I can then just cash it out and deposit it to my normal Etrade account?

You would move it to your Roth IRA at E-Trade in order to continue to shelter the gains and income from taxes. So, there is an advantage to moving it into the Roth account instead of your taxable account.

AJ
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Footsox,

There are several separate issues:

1.) Cashing in a CD early likely will incur penalties.
Whether or not you want to take the penalty (separate from any IRS or state penalties for early withdrawal) depends on the penalty and the remaining duration of the CD.

2.) Brokers including E-Trade had a different type of CD than credit unions.
It isn't possible to transfer the credit union CD to E-Trade.

3.) You are over 59 1/2 and the ROTH IRA is over 5 years old
Assuming that the funds were contributed and not converted then you can distribute the ROTH IRA without incurring income taxes or penalties.

4.) One non-trustee to trustee rollover per 12 months is allowed. You could distribute the ROTH IRA and do a non-trustee to trustee if you want to keep the funds in a ROTH IRA but a trustee-to-trustee is a better choice. One the CD has matured or been liquidated within the ROTH then E-Trade can issue the request to rollover the ROTH IRA.
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Well, if you don't need the cash I would slide it over to the Roth in Etrade.

How much did the CD make you?
In a self- directed Roth you stand the chance of making a lot more tax free gains in the next several years. There for sure are arguments for both sides.
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footsox: "Hi guys, Thanks again. I have done some Googling. Since I am over 59.5 years old, and have held the ROTH CD for over 5 years, then me cashing out the Roth CD at the credit union is then a "qualified distribution" and I will not have to pay the 10% penalty. OK. I finally get that.
However, won't it count toward my gross income for this tax year?"


No, it will not count as gross income based upon the facts you have reported to us.

"So, I can then just cash it out and deposit it to my normal Etrade account?"

Technically, yes, but there are several reasons not to do it that way, which have been discusssed in this thread.

"Forgive me for my denseness. I was just trying to simplify my darn credit union accounts and this is kind of a straggler. My other Roth accounts are in Etrade, so I wanted to get them all in one place."

Not a problem, but I am not sure you understand and you have a terminology problem.

First, think about it the way rad wrote:

reallyalldone: "Here’s the most important piece you need to understand — you have a CD from your credit union in a Roth IRA. Please read that again. Not understanding this piece is impacting everything else."

next, aj spelled out the best method:

aj485: "Tell the CU that you want to open a money market or savings account in the Roth IRA at the CU, then cash out the CD and the proceeds deposited into the new account in the Roth IRA at the CU. Have E-Trade contact the CU to take the cash (and any interest that may have accrued) and transfer it to E-Trade."

I will try in other words, and more detailed steps:

1. Contact your credit union and tell them you want to break the certificate of deposit/terminate it early. Sometimes this involves a penalty but you have reported that your CU does not charge one.

2. While talking to the CU, inform them that you want the proceeds of the broken CD to remain in a/the Roth IRA and open a money market in the Roth IRA at the CU to receive the proceeds.

3. While talking to the CU, ask when the funds will be available from the money market account in the Roth IRA at the CU.

4. After the date the funds become available in the money market account in the Roth IRA at the CU, again contact Etrade and request that they assist with doing a trustee to trustee transfer of the funds in money market account in the Roth IRA at the CU to your ETrade Roth IRA at Etrade.

5. After the trustee to trustee transfer is complete confirm tha you will not be charged any account fees at the CU for the zero balance money market account in your Roth IRA at the CU; if yes, you likely want to close it.

Ask more questions if you still do not understand.

Regards, JAFO
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Thanks everyone for all the great and detailed replies. I really appreciate it. I appreciate your patience with me too! :)

-Footsox
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