The credit union I belong to offers an IRA share that returns 4%, paid monthly, until Dec 31st of this year. After that it reverts to .3% or something. New money contributed after Dec 31st gets x%, whatever the amount they offer is, etc. Roth or Traditional is the same.
My understanding is I can roll that money over to another IRA account at any time. My first thought is that I could create a ladder, that is, put $5,500 in there at the beginning of the year to get the guaranteed 4% return, then roll the money into my Vanguard IRA once the high-interest term ends and start over with new money for the next term. Might make sense in years I think the market is going to be stagnant or go down.
But then I thought, couldn't I contribute regularly to my Vanguard IRA, put $5,500 in this credit union share as well then on Dec 31st roll it over into Vanguard and then take it out? Like, because you can remove excess contributions any time before April 15th?
Feel free to tell me that a) this is illegal, b) it's stupid to do for just 4% yield and/or c) you have some cunning, better, scheme for how I could usefully make this product part of my portfolio.
Update: after having looked at the IRS rules I think I see the flaw. In order to avoid excess contribution penalties, you have to withdraw the excess principal as well as the interest on that principal (which also answers my question about why people don't put in like $20,000 at the beginning of the year, planning to withdraw the excess by the deadline, in order to get the earnings into the IRA); the interest on the principal is subject to regular income taxes, of course, but it is also hit with the 10% early withdrawal penalty. That would knock my return down to 3.6%. However, if someone over 59.5 had this same opportunity they wouldn't have to pay the early withdrawal penalty (and also might be more interested in the low but guaranteed return.)
