What is an IRA Certificate?

What is an IRA Certificate?

Individual retirement account (IRA) certificates combine the stability of a certificate with the tax advantages of an IRA. Certificates are savings accounts that pay interest for a certain amount of time (known as a term), while IRAs are retirement accounts that allow you to save for retirement without an employer and can include different types of investments, including stocks, bonds or mutual funds. IRA Certificates blend the two together by investing retirement money into a certificate. IRA Certificates are ideal for anyone that wants to invest their retirement fund in a low-risk way and offer tax advantages unlike a regular certificate.

Always consult with a tax advisor to understand how an IRA may impact your specific financial situation.

Key Takeaways

• IRA Certificates are individual retirement accounts where all the money is invested in certificates.
• IRA Certificates offer various advantages to investors, including: predictable income, high interest compared to regular savings accounts and safety from loss.
• IRA Certificates are ideal for conservative investors who are looking to add stability and predictable returns to their retirement portfolios.

How does an IRA Certificate work?

IRA Certificates work similarly to a normal certificate – the money that is added to the IRA Certificate will receive a specific amount of interest for the length of the certificate. Rates vary, but investors are likely to earn more interest the longer their certificate term lasts. Certificates are a safe choice compared to other retirement investments due to its steady interest income. IRA Certificates are not a fit for anyone who is in the early stages of retirement investing.

What are the benefits of an IRA Certificate?

IRA Certificates have many benefits, including predictable income, safety from loss and high interest compared to savings accounts. Additionally, IRA Certificate investors also receive the same tax benefits as IRA and will not be taxed on any interest earned – investors will only be taxed on these funds when they are taken out of the account, which is typically after retirement when the investor's current income is lower. Additionally, IRA Certificates are federally insured to at least $250,000.

Who should invest in an IRA Certificate?

If investors are close to retirement or have already retired and want a guaranteed rate of return, an IRA Certificate is ideal. IRA Certificates are not a fit for anyone that is early into retirement investing. Read more to learn which retirement account is perfect for you.  

How to open an IRA Certificate account

There are two main choices for investing in an IRA Certificate: you can contribute funds to a new SDCCU IRA Certificate or rollover funds from your existing IRA. SDCCU accepts rollover funds, as well as other IRA options including Transfer IRAs and Spousal IRAs.