Question: I have money in a SIMPLE IRA at a former employer. I am 64 and still working, and would like to move my money to a place closer to home. Can I put the money (about $70K) into staggered CDs without a bank or broker being involved, and without tax penalty? Or do I have to open an IRA at another bank, and then have them put the money into CDs for me? Thank you.
Based on what you are looking to accomplish, choosing a bank for your rollover is probably the most straightforward approach. This should help shield you from incurring tax consequences on your rollover before you need to, and give you ready access to a range of CD products for constructing a CD ladder (i.e., a series of CDs with staggered maturities).
Cash out SIMPLE IRA: rules and options
Being over 59 1/2 gives you a wider set of options for cashing out a SIMPLE IRA at your former employer.
Worst case, taking money our of a retirement plan can have two types of tax consequences. One is the need to immediately pay income taxes on the withdrawal, and the other is an early-distribution tax penalty. For most retirement plans, this penalty is 10 percent, but in the case of a SIMPLE IRA it can be as high as 25 percent if it has been less than two years since you began participating in the plan.
Fortunately for you, the early-distribution penalty does not apply if you are older than 59 1/2. So that just leaves ordinary income tax to worry about.
You can defer this by rolling the money into another qualified plan - either a SIMPLE IRA, or a traditional IRA if it is a least two years since you started participating in the SIMPLE IRA. Rolling over into another tax-deferred retirement plan allows you to delay paying income tax on the money until you need to withdraw it, and enables you to withdraw the money over a period of years rather than risk bumping yourself into a higher tax bracket by withdrawing it all at once.
One reason why it might be helpful to work with a bank in this context is that a trustee-to-trustee transfer from your current plan to a bank IRA can help make sure this is not considered a taxable distribution from the plan.
CD investments when you cash out SIMPLE IRA
Another reason a bank seems a good option for you is that you want to invest the proceeds of your SIMPLE IRA in CDs with staggered maturities. Most major banks are likely to have the range of maturity options you need, so be sure to compare their CD rates to find the best ones.
Other financial firms might have products with characteristics similar to a CD, but only a bank can give you the peace of mind that comes with having your money backed by FDIC insurance. So, in addition to shopping for competitive CD rates, make sure you choose a participating FDIC-backed institution.
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