Forgotten IRA CD

[thedigitalone]

Just received notice about a IRA CD maturing soon that was opened 5 years ago that has accumulated a whopping $58.53 in interest on $1,000 over the past 60 months (sigh) what a waste.

It was purchased with post-tax dollars, the question is if I just cash it out and move it over to our regular brokerage account the 10% penalty would only apply to the accrued interest, not the whole balance, right? Or would it take a 10% chunk of the initial investment as well?

-TDO

[dandarc]

Do you have other traditional IRA balances, including SEP-IRA and SIMPLE-IRA if applicable?

Because if you moved this account into taxable, you'll owe tax / additional tax based not on just this account, but the pro-rated balances in all of your traditional IRAs. So if you might be surprised at the tax bill if you've got large tIRA balances out there.

[thedigitalone]

Wow, that complicates things, I do have another IRA, it has been a few years since we've qualified for contributions to it but it has a much higher balance.

Maybe I'll go figure out the transfer steps after all!

[MustacheAndaHalf]

Do you have an account at Schwab, Vanguard or Fidelity?  You can contact any of them to transfer your account over, and then purchase low expense ratio mutual funds.  $5,000 at CD rates doesn't do much, but in the stock market it can grow much faster towards retirement.

You should also figure out if you have a "Roth IRA" or a "Traditional IRA", as you'll need to know that for the transfer.

[dandarc]

That's a good point - does "purchased with post-tax dollars" mean Roth, or does it mean non-deductible traditional IRA?

The answer I gave yesterday assumed it was non-deductible, traditional IRA. Assumed that because most people would just say "I have a CD in a Roth IRA" if that was the case, but the language was ambiguous.

If it is a Roth, then the tax treatment is different on a non-qualified withdrawal. There are ordering rules for non-qualified withdrawals, so you could owe between nothing and a little in taxes / penalties if just withdrawing the $1,060.

Unless there is a need for the money, I'd still favor a transfer / investing in funds, but the tax hit on early withdrawal of Roth IRA contributions is much less severe than on a tIRA balance.