Certificate of Deposit & IRA Accounts

About CDs

A CD is a time deposit, meaning it has a fixed term and fixed APY and typically higher than saving account rates. CDs are better funds that have a time horizon of a year or longer because they may help you earn more interest than a liquid savings accounts.  The longer your CD term, the higher your rate of return.  You’ll likely incur a penalty if you withdraw your principal before it matures.

About IRAs

An IRA, or individual retirement account, is an investment product that allows you to grow cash on a tax-deferred basis until the money is withdrawn.  The Internal Revenue Service created them as another way to contribute to your retirement other than a 401(k).

Everyone dreams of retiring comfortably but sometimes Social Security and pension benefits are not enough.  This is when opening an IRA may come be helpful and their tax benefits and easy access are what makes them so attractive.  Unlike a 401(k), which is an employer-sponsored retirement account, you can sign up for an IRA on your own.

Anyone can open an IRA account as long as they have earned income.  There are certain exceptions that allow the early withdrawal of your IRA contributions penalty-free.  Generally, however, withdrawing earnings before the age of 59 1/2 is subject to a 10% tax penalty.  You can own more than one type of IRA.  Determining what type of IRA is right for you should depend on your income, both now and what you expect it to be in the future.

IRA Types

• Traditional – A traditional IRA allows your contributions to grow tax-deferred until you withdraw them upon retirement.
• Roth – A Roth IRA is funded with after-tax dollars, meaning you’ve already paid taxes on the money you put into it.  In return, your money grows tax-free.  Once you retire and withdraw your savings, you won’t pay taxes on it.
• SEP (Simplified Employee Pension) – A SEP IRA is a type of traditional IRA designed for self-employed individuals and small business owners with few employees.  Like traditional IRAs, the money in SEP IRAs is not taxable until withdrawn.  Unlike traditional IRAs, these are funded with employer contributions only.
• ESA (Education Savings Accounts Coverdell) – A Coverdell ESA is an account set up in the United States solely for paying qualified education expenses for the designated beneficiary of the account.  They offer tax-free investment growth and tax-free withdrawals when the funds are spent on qualified education expenses.

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