Safest place to open ira?
I have $200,000 in a 457 short term securities account that provides 2.75% APY. Where can I move it to get a better return, but still be safe?
A govt 457b can be directly rolled into an IRA but only after you have completed your 457b RMD for the year. Once in the IRA such as a brokerage IRA at Vanguard (not a mutual fund IRA), you could easily get over 5% on a brokered CD. Even the VG federal MM fund currently yields over 5%. As for bonds, now that the rate increases have ended, they could recover much of their losses in the last year.
Thank you again for your advice. I’m hesitant to use a Money Mkt fund because the rate is subject to too much change. I want to put the $ someplace where I can leave it for a while. A 1-year CD in the neighborhood of 5% would be good. The brokered CD you mention sounds promising. However, I’ve read many times that you should never invest in something you don’t understand–and I don’t. I don’t know what it is or if it’s appropriate for an IRA requiring RMD. Can you point me toward some educational info or provide it yourself? Also, if Vanguard offers this, does Fidelity also? (I have several accounts in Vanguard and I’d like to keep this money elsewhere just for ease of keeping track of it.)
FIdelity, Vanguard, and Schwab all offer similar brokered CDs from similar banks. Most are FDIC insured, but there are some differences from direct bank CDs. One difference is that you cannot surrender the CD to the bank and pay an early withdrawal penalty. Instead, you must sell brokered CDs in the brokerage IRA in the secondary market, often taking a loss. Therefore, you should plan to hold brokered CDs to maturity. When these CDs mature, the cash is paid into the brokerage account and is placed in the clearing MM fund until you reinvest it elsewhere. When you are subject to RMDs, you would typically plan to leave the RMD amount out of these CDs, otherwise you have to time the maturity so that funds are available to distribute the RMD. Since your RMDs are only around 4% of the prior year end value of your IRA, that’s a small amount to leave out of longer term investments including brokered CDs. Brokered CD terms generally range from 3 months to 5 years. If you think interest rates are due to fall soon, you could lock in the current yields for 4 or 5 years, or purchase brokered CDs in different amounts and terms. These brokerages all provide more details and educational material on brokered CDs. Again, these can all be in a single IRA brokerage account, and your beneficiary will be the same as you name for the IRA account itself.
Thanks so much. Sorry I was unavailable to respond today–babysitting. You’ve helped me out so much, and I probably have enough info to do it. If I do come up with another question I’ll be sure to bother you.
I have 5 brokered CDs in our Fidelity T&R IRAs. If you’re looking for a one year or longer maturity there are a couple of things to watch for in the brokered CD. First, is the CD callable prior to maturity. The prospectus will tell you the interest rate that would trigger the call. And if you’re using the CD interest to meet your year’s RMD, you’d want to make sure the CD pays the interest monthly or perhaps quarterly. Fidelity will advertise a one year CD at 5.1%, but when you go to the list of the one year CDs, you may drop down the list to a 4.4% CD that is not callable and pays interest monthly. I began RMDs last year. To meet the cash flow needed to pay the RMD in cash without having to sell anything and considering I’d prefer not to take the RMD in-kind with shares of a stock, I’ve purchased about 10 interest/dividend paying securites with an average yield of just under 5%, which I project will meet my RMDs into my early 80s. Due to the high interest rates at the time, I was able to get some great buys on long term dividend payers from REITs and Utilities and a couple of consumer staples, whose prices today have gone back up and so have dropped their yields back down to historic levels for them. Lucky me!Just a couple of thought to pass along
Permalink Submitted by Alan - IRA critic on Tue, 2024-01-09 19:52
Is the 457 a govt plan and are you no longer working for the plan sponsor?
Permalink Submitted by Peter Hamerslag on Wed, 2024-01-10 17:48
Yes, a government 457(b) plan, similar to a 401k. I’m retired. I’m also 76 years old so have to do RMDs, which I suspect makes any decision more complicated. If I could put the money in a 12 month CD for 5.50% that would be perfect, but I’d have to be able to withdraw part of the funds in mid to late December. So a no-go.I also have as much retirement money in Vanguard index funds as I want. So I don’t want to put this money in stocks or similar. I also don’t feel that bonds are worth it–poor returns just to avoid volitility.