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Certificates of Deposit (CDs) & Individual Retirement Accounts (IRAs)

Funding an Individual Retirement Account (IRA) or Certificate of Deposit (CD) is great at any age, but the sooner you begin, the harder your money works for you through the power of compounding. CDs and IRAs are designed as a safe, secure long-term investment strategy with the intent to kick back, relax and watch your money grow!

Certificate of Deposit Accounts

Still relying on a traditional savings account to manage your cash for a down payment on a home, vacation, or personal emergency fund? That's great but what if you could grow your money while saving it for those big moments? When you’re ready to step up your savings game, start by placing your hard-earned cash into a higher interest account, or as your parents know it - a Certificate of Deposit. CDs have specific terms, locking in that interest rate for the entire term you select so that you don’t have to worry about rates decreasing during that time period.

Rollover IRA

Changing jobs? Have you thought about what you will do with your 401(k)? There’s something very exciting, yet terrifying about starting a new job. Will you catch on quickly? Where’s the best vending machine? Will you forget something really important in your old desk before handing over your key card? Spoiler alert; most people do leave behind something huge when starting a new job - their 401(k).

There’s nothing easy about starting over with a new company, except rolling over your 401(k) with us. Our knowledgeable Personal Bankers can help take one more thing off your plate! Rolling over the money you squirreled away for retirement into an IRA is a safe and secure way to continue growing your nest egg.

Traditional IRA

This is a retirement plan that allows your savings to grow within the IRA until you take a distribution. Contributions you make to a Traditional IRA2 may be fully or partially tax deductible. Basically, you don’t have to pay taxes until you’re ready to retire. This is a great option if you expect to be in a lower tax bracket during retirement.

Roth IRA

Roth IRA2 earnings are taxed at the time of investment so when you’re ready to retire, you’ll know the taxes are already paid. Basically, you pay taxes upfront as you’re building your retirement savings, protecting yourself from an unknown tax amount on your hard-earned cash at the time of distribution. How? You’ve already paid taxes on the contributions and may be able to avoid taxes on the interest earned if you have a qualified Roth distribution. This is a great option if you expect to be in a high tax bracket during retirement.

Please consult your tax advisor as to which type of IRA best fits your needs.

Roth and Traditional IRA Comparison
ROTH TRADITIONAL
What's the same?
  • Contribution Limits - 2021: $6,000 ($7,000 age 50 and older); 2022: $6,000 ($7,000 age 50 and older)
  • Contribution deadlines - Friday, April 15, 2022 (for the 2021 tax year) 
Advantages
  • Qualified withdrawals in retirement are tax free.
  • Contributions can be withdrawn at any time.
  • If tax deductible, contributions reduce taxable income in the year they are made
Limitations
  • No immediate tax benefit for contributing.
  • Ability to contribute is phased out at higher incomes.
  • Deductions may be phased out
  • Distributions in retirement are taxed as ordinary income.
Early Withdrawal Rules
  • Contributions can be withdrawn at any time, tax- and penalty-free.
  • Unless you meet an exception, early withdrawals of earnings may be subject to a 10% penalty and income taxes. 
  • Unless you meet an exception, early withdrawals of contributions and earnings are taxed and subject to a 10% penalty. 

Do I want an IRA? What are the benefits? Why should I get an IRA? 


Coverdell Education Savings Account (ESA)

A Coverdell ESA3 is an investment account that can only be used to save for qualified Elementary, Secondary, or College Education expenses. Saving for your child’s future is just as important as saving for yours. But putting money aside in low-earning savings accounts to help them save for their education isn’t maximizing your investment. There are better options, including starting an ESA for your children before they even start kindergarten, giving you the financial flexibility to send them to the school of your choice. For more information on Coverdell ESAs, refer to www.irs.gov/taxtopics/tc310.html, and/or www.savingforcollege.com.


¹Subject to earned income.
²Certain IRS restrictions apply to deposit accounts. IRA accounts cannot be a joint account. Withdrawals before age 59-1/2 may be subject to IRS penalties.
3ESA accounts cannot be a joint account.
Certificates of Deposit and 24 Month IRA are subject to early withdrawal penalties.

The biggest difference between a CD and an IRA is the length of time you plan to have the investment. CDs are a savings tool with specific term investment options.  Penalties may apply if you break the term agreement of a CD.  IRAs are a tax incentive savings tool for working individuals with earned income and invested until retirement.

A Traditional IRA can reduce the taxable income each year a contribution is made.  A Roth IRA does not reduce the taxable income; however, it can provide tax advantages at the time of withdrawal. IRAs are a tool to supplement social security income at retirement.

Yes, tax laws change every year. View our chart above for the most current contribution guidelines.  Withdrawals before age 59 ½ may incur an IRS early withdrawal 10% tax penalty. Traditional IRAs require an annual minimum distribution starting at age 72. Special circumstances have been established for early distribution, such as, first time home purchase, education expenses, medical expenses, health insurance after unemployment, IRS levy and death. 

Generally, a Traditional IRA is tax deductible for the tax year designated. Earnings are tax deferred until a withdrawal is made. Distributions are added as regular income. Roth IRA contributions are usually nondeductible. Interest earned is also tax deferred and can be tax free if you withdraw after age 59 ½ and have had the Roth IRA for at least five years. The Roth IRA does not have a mandatory distribution. Both types of IRAs do have specific income qualifications. Try our free Traditional and Roth IRA calculators to help you determine which one is the best fit for your needs. 
Laddering your Certificates of Deposit (CDs) allows you to space out (or ladder) the maturity dates so you can have a mix of maturity dates and rates. In a low-rate environment, you may be hesitant to put all your funds in a 5-year CD just to get the highest rate. Instead, you could put some funds in a 12-month CD, some in 24 months, 36 months, 48 months, and 60 months. Then, when the 12-month CD matures, you reinvest that for 60 months so you can get the highest rate. When the 24-month CD matures, you reinvest that for 60 months for the highest rate, etc. Eventually, each year when a 60-month CD matures, you can reinvest it for another 60 months and always get the highest rate offered, yet still have some of your funds maturing each year. You can also try our free CD ladder calculator that shows you the benefits of investing in a series of Certificates of Deposit with different maturities vs. a single long-term CD.