How to Redeem an IRA CD

CDs are commonly used as conservative investments in IRAs.
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One of the main benefits of an individual retirement account is that taxes on any earnings in the account are deferred until you withdraw the money. Since a certificate of deposit pays taxable interest, holding a CD in an IRA can make financial sense. If you want to redeem an IRA CD, you have two options: You can either wait until the CD matures, or you can sell the CD before its maturity date. If you allow the CD to mature, you'll receive the full face value of the investment. If you sell the CD before maturity, you may receive less.

Step 1

Verify that the CD has no automatic renewal provision. If your CD is on automatic renewal, it will immediately reinvest into a new CD when it matures. If your intention is to redeem the CD and decide on your own what to do with the proceeds, you'll want to avoid having it automatically renew.

Step 2

Wait for the CD to mature. When you buy a CD, it comes with a stated maturity date. At maturity, the CD will pay back its face value. If you want to redeem a CD at maturity, you don't have to do anything. The CD will automatically pay off without any action required on your behalf. The money will be deposited into your IRA and will be available for your use. Since the money is in your IRA, you will not have to pay any taxes at the time of redemption.

Step 3

Contact your broker or financial services firm. Indicate you want to redeem your CD before maturity, which will involve a sale.

Step 4

Ask what the penalty will be. Redeeming a CD before maturity typically involves a penalty. With bank-issued CDs, you'll usually have to sacrifice a few months of interest. If you bought your CD in the open market from a broker, you generally won't have an interest penalty, but you'll have to accept the current market price. If interest rates have risen since you bought the CD, you may have to sell it at a discount, resulting in a loss. In that case, your capital loss will be your penalty.

Step 5

Keep the money in your IRA, if you wish to avoid taxes and penalties. If you take money out of your IRA, it becomes taxable. You may also face a 10 percent penalty for an early distribution if you're under 59 1/2 when you take the money out. You can avoid both taxes and penalties if you If you keep the money in your IRA.

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