An individual retirement account gives you more control over your retirement assets because you can pick how and where the money gets invested. A jumbo IRA isn't just a big IRA, it's a certificate of deposit that you invest your IRA money in. Before you pick a jumbo IRA, be aware of how they work.
Jumbo IRA CD Basics
Jumbo IRA CDs offer a fixed rate of return on your money for a specified period of time. The CD maturities can range from a few months to up to five years. But, if retirement's a long way off for you, the longer term usually won't affect you, and you can get a higher rate for the longer terms. Jumbo IRA CDs pay a higher interest rate than other CDs, but have minimum deposit requirements that vary from institution to institution, but are commonly around $100,000.
Besides the higher rates than regular CDs that don't have minimum deposit requirements, jumbo IRA CDs are advantageous because you're not at risk of losing your money if the market takes a dive. Plus, up to $250,000 of your CDs in your IRA at each bank are protected by the Federal Deposit Insurance Corporation, so even if the bank goes out of business, your money is safe. However, returns typically aren't as high as market investments.
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Early Withdrawal Penalties
When you invest money in a jumbo IRA, remember that once you put the money in, you're potentially subject to two separate early withdrawal penalties. First, there's the early withdrawal penalty from the IRS, which tacks on 10 percent to the taxable portion of most withdrawals taken before you turn 59 1/2 years old. Second, if you take your money out of the jumbo IRA CD before it matures, you'll owe an early withdrawal penalty to the bank as well, even if you don't owe the IRS an early withdrawal penalty.
The contribution limits to IRAs still apply even when you're wanting to invest in an IRA CD, so it could be a while before you have enough money stashed in your IRA. As of 2013, you're only allowed to put in $5,500 -- $6,500 if you're 50 or older -- for the year. If you exceed that limit, you owe a 6 percent excess contributions penalty. So, unless you've been contributing for a long time or you've rolled over money from another plan like a 401(k), you might have to stick with regular CDs for a while.
- Internal Revenue Service: Publication 590 -- Individual Retirement Arrangements (IRAs)
- Find Bank Rates: Nationwide Bank -- Jumbo IRA
- NuVision Federal Credit Union: Jumbo IRA Certificate
- Wells Fargo: CD Basics
- Federal Deposit Insurance Corporation: Insured or Uninsured?
- Internal Revenue Service: 2013 Pension Plan Limits
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