But you shouldn’t do this. A savings account/money market only pays 15% dividend taxes, not regular income tax or capital gains.

A money market will return around 5% at most per year. So on as much as $10,000 in a money market, the most you will make is $500 in gains, and pay .15 * 500 = $75 in tax. So you are declaring $75 as tax free.

That’s insane. Don’t do this.

A CD for a young person inside their Roth IRA is foolish and flat out one of the most financially silly moves one could make.

Also, even though you face the same kinds of penalties through ING if you close your CD early, it’s remarkably easy to do.

My jaw almost dropped, but not as far as this person actively seeking this low-level, “savings” type account. You can’t even blame some creepy salesman who led you down the wrong path.

Since you are always supposed to say something positive first, I will start by saying it is excellent that you are asking questions and actually are pursuing saving for your future, but that is where the good stuff ends.

Please, PLEASE max out your IRA each year and buy something outside of a money market savings fund. Buy an ETF after you have $500 saved. Transfer your IRA [if you have one opened] to a low-cost fund company that will allow you to get started buying $50 a month if that is all you can afford, but there is no worse thing to hear [other than not enrolling in a 401k for 17-years like I heard today] that someone wants to allow their hard earned savings sit there and collect dust after going 95% of the way by opening an account. The whole idea that you have to save “a lot” of money to get going in a mutual fund is a crock.

This kinda stuff frightens me to death. To actively seek a 2% return inside a tax-advantaged account makes me do a full body shake in horror.

Even just buying VTI or DIA or something to hold you over until you learn is 100-times better than allowing some teller at a bank to make a $5.00 sales commission for scamming…..errrrr….I mean opening up a IRA for you.

Now that I’ve said that, I’m sure someone will point me to a place that allows for just what I’m talking about

I only recently began a Roth IRA at E-trade. It does require a bit of homework to pick a good fund(s).

After money is committed to an IRA, it can be “rolled over” to other kinds of accounts or to other institutions. Just like an IRA savings acct might be a good place to park little bits of money until you’ve got enough to invest elsewhere, an IRA CD might be a good place to park money for a while til you’re able to figure out which higher-yielding investment you’d like to roll that money over to.

Or, for someone who needs to be really risk averse–someone who’s close to retirement, or at retirement age and needs to keep their capital intact, an IRA CD might be considered an ultra-safe choice that still has somewhat better yields than a savings acct.

Obviously, if CDs are obtainable at similar rates, those would be a better choice, since once the money is in an IRA you probably don’t want to touch it anyway. So the normal time-lock disadvantage of CDs is not present. Actually, that makes me wonder why these companies offer them in the first place… They pretty much have your money locked already in an IRA. Why do they offer CDs to further lock in the money? Strange.

http://www.fuzeqna.com/wsecu/consumer/kbdetail.asp?kbid=1246

I’m guessing that the utility of an IRA savings account is that it’s a place to park money until you have enough to put your accumulated funds into something with a better return, but also a minimum balance. Further down on that page cited above there is a block of info on IRA certificates (CDs)–the minimum there is $500. I’m guessing money market or mutual funds would have even higher barriers to entry. So, an IRA savings acct would get someone on the way to meeting those minimums.

Unfortunately I don’t have any good recommendations about IRA savings accts with better yield, like the internet banks. But, I can vouch that these products exist!

I’ll get the correct information incorporated into the post.

In any event, I do agree with your “deposit only” philosophy for retirement assets.