Brokered CD in an IRA

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MBL
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Brokered CD in an IRA

Post by MBL »

Can a portion of a brokered CD in an IRA be sold in order to liquidate enough funds to satisfy an RMD, or does the entire brokered CD have to be liquidated? It was purchased in 2016 and has a ten year maturity date, with an interest rate that is good by today's standards. There will not be enough funds in other investments in the IRA to meet the RMD requirement for 2021.
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Stinky
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Re: Brokered CD in an IRA

Post by Stinky »

I would get in touch with the issuing financial institution to find out the answer.

I wouldn't be surprised if the financial institution requires you to surrender the whole thing. That would be in their best interest, since it would get rid of an "above market rate" liability, and allow them to collect an early withdrawal penalty to boot.
It's a GREAT day to be alive - Travis Tritt
123
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Re: Brokered CD in an IRA

Post by 123 »

If the interest rate on the CD that you hold is higher than current rates it is possible that it will sell at a premium. So your proceeds could be higher than the par value you paid for the CD. The amount of the premium would depend on how much higher that rate is on the CD you hold and how much time is left on the CD. You could be pleasantly surprised.
The closest helping hand is at the end of your own arm.
Greenman72
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Re: Brokered CD in an IRA

Post by Greenman72 »

Stinky wrote: Fri Nov 20, 2020 4:25 pm I would get in touch with the issuing financial institution to find out the answer.

I wouldn't be surprised if the financial institution requires you to surrender the whole thing. That would be in their best interest, since it would get rid of an "above market rate" liability, and allow them to collect an early withdrawal penalty to boot.
+1
These are two different instruments, and two different authorities.
The IRS requires you take RMD. It doesn't care what it's invested in or whether there's a penalty.
The bank issues the CD. They don't care whether it's in an IRA.
IfIOnlyKnew
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Re: Brokered CD in an IRA

Post by IfIOnlyKnew »

When I asked Fidelity a couple of years ago about selling a brokered CD I had at the time, it was all or nothing.
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Stinky
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Re: Brokered CD in an IRA

Post by Stinky »

Stinky wrote: Fri Nov 20, 2020 4:25 pm I would get in touch with the issuing financial institution to find out the answer.

I wouldn't be surprised if the financial institution requires you to surrender the whole thing. That would be in their best interest, since it would get rid of an "above market rate" liability, and allow them to collect an early withdrawal penalty to boot.
Instead of cashing it in with the issuing bank, I guess that you could try to sell it on the secondary market (if one exists).
It's a GREAT day to be alive - Travis Tritt
Greenman72
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Re: Brokered CD in an IRA

Post by Greenman72 »

On a similar note....

Q: Why should you never ever ever hold real estate in a self-directed IRA?
A: Because it's virtually impossible to satisfy an RMD requirement with an illiquid, non-cash-producing piece of property.
Alan S.
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Re: Brokered CD in an IRA

Post by Alan S. »

RMDs do not exceed 5% of your prior YE balance until age 80, and do not exceed 10% until age 93 under the new tables effective in 2022.

Therefore, you only need a small portion of your IRA left in liquid investments unless your illiquid investments are expected to last more than a couple years. You will then be able to easily complete your RMDs without disturbing these investments. If you still want to use brokered CDs you can also ladder the maturities. Selling a brokered CD in the open market may not be too costly now that interest rates have crashed, but it would be quite ugly if and when rates turn around.
Longdog
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Re: Brokered CD in an IRA

Post by Longdog »

In a Vanguard brokerage account, you can sell a portion (in 1000’s) of a brokered CD. You request a bid and an hour or so later you see what it is and can accept it and sell or reject it. I’ve done it numerous times. No big deal - there is a secondary market for brokered CDs.
Steve
egrets
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Re: Brokered CD in an IRA

Post by egrets »

MBL wrote: Fri Nov 20, 2020 2:28 pm Can a portion of a brokered CD in an IRA be sold in order to liquidate enough funds to satisfy an RMD, or does the entire brokered CD have to be liquidated? It was purchased in 2016 and has a ten year maturity date, with an interest rate that is good by today's standards. There will not be enough funds in other investments in the IRA to meet the RMD requirement for 2021.
Call whatever brokerage has the IRA account and ask, but my belief is the entire CD will have to be sold. The good news is that because it has a decent interest rate, you will almost certainly make some money on the sale.

Update: Longdog may be correct. I have had brokered CDs at Vanguard and this was never mentioned to me.
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