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Saving for retirement is one of the most important things you’ll do with your money. But there are a lot of different ways to save for retirement. Choosing the best option can be confusing.

If you’re looking for a simple solution that offers both steady earnings and protection for your funds, an IRA certificate could be right for you. While you may not have heard of this type of account, you’re probably familiar with the two accounts it combines: an individual retirement account (IRA) and a certificate (the credit union equivalent of a bank CD). Here’s why an IRA certificate could be a smart approach to your retirement savings.

 

BENEFITS OF AN IRA

Individual retirement accounts, or IRAs, are retirement savings plans that offer valuable tax advantages for those who qualify. While plans like 401(k)s are only available through certain employers, IRAs are offered by many financial institutions, and almost anyone can open one.

However, to enjoy their unique tax benefits (such as the opportunity to grow your money tax-free while funds are in the IRA), you’ll have to meet the government’s eligibility requirements. These requirements are based on your income, and annual contribution limits apply (see our IRA certificates page for details). The money in IRAs can be invested in many things, including mutual funds and stocks. The funds can also be held in a certificate.

BENEFITS OF A CERTIFICATE

Certificates (also known as share certificates) are accounts offered by credit unions that allow members to earn a higher rate by saving their money for a specific length of time (ranging from a few months to many years). Depending on its term, a certificate may offer higher returns than even a high-yield savings or money market account.

In exchange for those higher returns, you’ll need to keep your funds in the account for the entire term (and you’ll pay an early-withdrawal penalty if you don’t). Traditional certificates are federally insured and pay a guaranteed fixed rate, giving you protection that you won’t find with stocks, bonds, or other riskier investments.

HOW IRA CERTIFICATES CAN SUPPORT YOUR RETIREMENT

By saving your IRA funds in a certificate, you can take advantage of:  

More Protection

You aren’t going to double your money, but you aren’t at risk of losing any of it either. These certificates are a practical way to protect your funds, earn high IRA certificate rates, and enjoy more peace of mind.

Steady Earnings

The stock market or interest rates may tumble, but your IRA certificate’s fixed rate is guaranteed for the entire term. You’ll know exactly how much you’ll earn upon maturity. And, because credit unions are not-for-profit and pass along their earnings to members, their dividends often beat the IRA CD rates of banks. 

Simplicity and Affordability

Buying and selling stocks and investing in specific funds, common in other types of retirement planning, comes with management fees, which chip away at your earnings. But an IRA certificate lets you avoid these fees and earn a great rate with minimal effort. You simply wait for the certificate to mature, then let it renew automatically, invest your funds elsewhere, or begin making disbursements (per the rules of your IRA).

 

Potential Tax Advantages

Depending on their type of IRA, eligible savers with IRA certificates can take advantage of tax breaks – either now or later – along with the opportunity to receive a tax deferral for dividends they earn. This is unlike regular savings or certificate accounts, in which dividend income is taxable each year.  

IS AN IRA CERTIFICATE RIGHT FOR YOU?

This option is ideal if you’re approaching retirement and want extra protection for your nest egg.

Before putting money into an IRA certificate, it’s important to make sure you’re eligible for its tax benefits and can commit to holding these funds out of reach for an extended time. While financial institutions have early-withdrawal penalties for certificates, the IRS may also impose a penalty for IRA funds that are disbursed before you’re 59 ½. 

At American Heritage, we offer a full selection of certificate, IRA certificate, and IRA savings accounts with highly competitive rates, along with an experienced team that’s here to answer your questions and help you choose the option that’s right for you. Or, for personalized guidance and support for your retirement planning, connect with our full-service Investment & Retirement Center (IRC) today.