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February 18, 2009

Certificate of deposit (CD)

Your Guide

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Definition

An investment product , where investors typically agree to receive a fixed rate of return on the amount invested. Amounts are usually invested for a fixed period, such as a month, a few months or a few years. The end of the investment period is referred to as the maturity date.

CDs that are terminated before the maturity date may be subject to an early withdrawal penalty. This is often waived for IRAs, if the owner is at least age 59 ½ when the withdrawal occurs

Referring Cite

Regulation D, 12 C.F.R. Sec. 204.2(c)(1);  12 C.F.R. Sec. 563.3-1(a)  ; 51 Fed. Reg. 10804

Additional Helpful Information

  • The early withdrawal penalty on an IRA CD is not rollover eligible. For instance, if the CD balance is $1,000, and the early withdraw penalty is $50, only $950 is rollover eligible.
  • The early withdrawal penalty is not treated as a distribution, and is therefore not reported on IRS Form 1099-R

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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