Can a Simple IRA Be Converted to a CD?

In saving and investing, it's vital to understand the options available to you, and the difference between an investment product and a savings vehicle. You cannot convert a SIMPLE IRA to a certificate of deposit because one is a vehicle and the other is a product. You can, however use both these things — together or separately — to achieve your financial goals.


An IRA is a retirement savings vehicle that provides specific tax benefits to the owner. SIMPLE IRAs are "traditional" IRAs — you make contributions to the IRA during the year and deduct those contributions from your taxable income. You then invest that money and let it grow. Provided you follow the IRS rules and leave the money in the account until you're at least 59 1/2 years old, you defer all tax on investment earnings and contributions until you withdraw the money in retirement. SIMPLE IRAs are a special subcategory of traditional IRAs that are designed for small businesses and sole proprietors. They allow larger annual contributions than standard IRAs.

Certificates of Deposit (CDs) Defined

CDs are an investment product that function similarly to a bond or loan. When you invest in a CD, you agree to allow the CD issuer to use your money for a set period of time. In return, the issuer pays you interest. In most cases, you can take back your deposit — the principal — at the end of the CD term, or you can roll it into a new CD. CDs are typically issued by banks and eligible for FDIC insurance, making them a very safe investment. If the CD is not in a tax-protected account like an IRA, the interest you earn is taxable in the year you receive it.

Vehicles vs. Products

An IRA is an investment vehicle — a container. You can use the money you deposit in an IRA to buy all sorts of investment products, some or all of which might be CDs. You might also buy mutual funds, annuities, stocks, bonds or other investment options. Your IRA investment options depend on the custodian — the business that holds the IRA account. IRA custodians can be banks, trust companies or investment firms.

"Converting" SIMPLE IRAs to CDs

If you don't want to buy a CD within your SIMPLE IRA, or your IRA custodian does not offer CDs as an investment product, you have three options. You can use other money, outside the IRA, to purchase a CD. You can do this "naked" — in a normal account — or you can set up a separate IRA account for the CD. You can withdraw money from your IRA to purchase a CD, but unless you are over age 59 1/2, this is an early withdrawal. You must pay tax on the value of the withdrawal, and the IRS will access an additional 10 percent penalty. Finally, you can roll over all or part of your SIMPLE IRA into a regular, traditional IRA account with a company that offers CDs as an investment option. IRS Publication 560 outlines the rules and procedures for an IRA rollover, or you can discuss your options with your IRA custodian or another financial advisor.