Can I Move My RMD into a CD (Certificate of Deposit)?

When to lock in CDs with high rates has been a hot topic now that the Federal Reserve’s efforts to combat inflation may be coming to an end. For retirement account holders who will receive a required minimum distribution (RMD) in 2024, now‘s the time to consider a CD to maximize retirement savings.

What are RMDs?

 A RMD is the minimum amount you are required to withdraw each year from your retirement accounts once you’ve generally reached the age of 72 or 73 if you reach age 72 after Dec 31. 2022.

Note: The RMD rules do not apply to Roth IRAs while the owner is alive, but they do apply to beneficiaries of ROTH 401(k) accounts.

What’s the Connection Between CDs and RMDs?

CDs are a smart savings strategy for unneeded funds from RMDs. When it comes to retirement assets, limiting risk to principal while earning a market-rate return is the name of the game. Using individual CDs or a ladder of CDs is an easy way of maintaining the safety of your principal and generating solid earnings on those assets until you need them.

Since you’re already expected to withdraw the RMD each year once you qualify, depositing these funds into a fixed-rate CD may be quite advantageous if you don’t need the money right away. You can also choose to withdraw more than the required amount and move it to a CD, potentially increasing your earnings. Of course, you would only want to withdraw extra funds if the interest rate on the CD is higher than what you are earning on your current retirement savings.

Note: This is not intended as tax or legal advice. Please consult your tax advisor or financial planner to understand how this may affect your individual financial situation.  

When you use your RMD — whether it be the minimum distribution or more – to open a CD, you can better protect your principal and receive more predictable returns and federal deposit insurance benefits.

Why Move your RMD in a CD Now?

For those of you receiving RMDs this year, remember that CD rates are at a 22-year high, and you may be able to generate better earnings than a traditional savings account. If you don’t need the funds right away and you value the safety of your principal and predictable returns, then consider a CD.

FAQs

What is an RMD?

Required minimum distributions (RMDs) are the minimum amounts you are required to withdraw each year from your retirement accounts once you’ve reached the age of 73. However, RMDs must start at age 72 if you have turned 72 before December 31, 2022

Note: The RMD rules do not apply to Roth IRAs while the owner is alive, but they do apply to beneficiaries of ROTH 401(k) accounts.

Why Should Retirees Invest in CDs?

High-interest rates may not be available for much longer. By placing your annual RMD withdrawals in a CD, you benefit from current high CD rates which may result in better earnings than your original retirement savings would provide.

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