When planning for retirement, one of the most important decisions you’ll make is how to invest your savings. One option to consider is a Certificate of Deposit (CD). But if you already have a 403(b) account, you might wonder if moving your funds into a CD will result in any charges or penalties. This guide will explore this question and provide the information you need to make an informed decision.
- Understanding 403(b) and Certificate of Deposit
- What is a 403(b)?
- What is a Certificate of Deposit (CD)?
- Charges and Penalties for Moving 403(b) Funds into a CD
- Charges for Moving 403(b) Funds into a CD
- Penalties for Moving 403(b) Funds into a CD
- Factors to Consider When Moving 403(b) Funds into a CD
- CD Term Length
- CD Interest Rates
- Next Steps
- Frequently Asked Questions
- Earn The Highest Interest Rates On Savings Today
Understanding 403(b) and Certificate of Deposit
To understand if there will be any charges or penalties when moving your 403(b) into a CD, it’s essential to understand what these accounts are and how they work.
What is a 403(b)?
A 403(b) is a retirement savings account for employees of non-profit organizations, schools, and specific government organizations. It allows you to save for retirement on a tax-deferred basis, meaning you don’t pay taxes on the money you contribute until you withdraw it in retirement.
What is a Certificate of Deposit (CD)?
A Certificate of Deposit (CD) is a type of savings account that typically offers a higher interest rate than a traditional one. When you open a CD, you agree to leave your money in the account for a specified period, known as the term. In exchange for leaving your money in the account, you earn interest on your funds.
Earn The Highest Interest Rates On Savings Today
Fixed annuities are almost identical to Certificates of Deposit (CDs) accounts and provide higher interest rates and penalty-free withdrawals for income.
| Term | Insurance Company | Interest Rate |
|---|---|---|
| N/A | UFB Bank Savings Account | 5.02% |
| N/A | UFB Bank Money Market | 5.02% |
| 12 Months | Western Alliance Bank CD | 5.01% |
| 36 Months | Oceanview Fixed Annuity | 5.00% |
| 48 Months | Americo Fixed Annuity | 5.05% |
| 5 Years | Aspida Fixed Annuity | 5.50% |
| 6 Years | American National Fixed Annuity | 5.45% |
| 10 Years | American National Fixed Annuity | 5.45% |
Disclaimer: This is a review. The Annuity Expert is not associated with a bank or credit union. However, fixed annuities are sold at most financial institutions. We aim to help you find the highest interest rates for your retirement savings. We may receive a small referral fee if you purchase something using a link in this article.
Charges and Penalties for Moving 403(b) Funds into a CD
Now that we’ve covered the basics of these two types of accounts let’s explore whether moving your 403(b) funds into a CD will result in any charges or penalties.
Charges for Moving 403(b) Funds into a CD
In most cases, there are charges for moving your 403(b) funds into a traditional CD. However, a rollover to an IRA CD or annuity would not inflict any charges. Nevertheless, it’s essential to check with your 403(b) plan administrator to confirm if there are any fees or charges associated with making this type of transaction.
Penalties for Moving 403(b) Funds into a CD
If you withdraw money from your 403(b) account before the age of 59 1/2, you may be subject to a 10% early withdrawal penalty. However, if you’re moving your funds into an IRA CD, you’re not technically withdrawing the money so this penalty wouldn’t apply. That being said, it’s essential to make sure you understand the terms and conditions of your 403(b) plan before making any changes.
Factors to Consider When Moving 403(b) Funds into a CD
While there may not be charges or penalties associated with moving your 403(b) funds into a CD, there are some essential factors to consider before making this decision.
CD Term Length
When you open a CD, you agree to leave your money in the account for a specified period, known as the term. CD terms can range from a few months to several years, and typically the longer the term, the higher the interest rate. Therefore, it’s essential to consider how long you’re willing to leave your money in a CD and choose a term that makes sense for your financial goals.
CD Interest Rates
As mentioned earlier, one of the benefits of a CD is that it typically offers a higher interest rate than a traditional savings account. However, interest rates can vary widely depending on the institution and the length of the CD term. Therefore, shopping around and comparing interest rates from different banks and credit unions is essential to find the best CD for your needs.
Next Steps
Moving your 403(b) funds into a CD may be competent, especially if you’re looking for a low-risk investment with a higher interest rate than a traditional savings account. And while there may not be charges or penalties associated with making this type of transaction, it’s essential to understand the terms and conditions of your 403(b) plan and to carefully consider factors such as CD term length and interest rates before making any decisions. Remember, it’s always a good idea to consult a financial advisor before significantly changing your retirement savings plan.
Frequently Asked Questions
What is a 403(b) retirement plan?
A tax-deferred retirement plan for non-profits.
Can a 403(b) be moved into a certificate of deposit (CD)?
Yes, transferring funds from a 403(b) retirement plan into a certificate of deposit (CD) is possible. However, it’s essential to consider any potential charges or penalties and weigh the benefits of a CD compared to other investment options.