Identification

• A certificate of deposit is a bank instrument. Each CD has a specified due date. Twelve-month CDs mature in one year. When you use a CD for an IRA, sometimes the bank has a special CD they designate as an IRA CD. Most of the time, banks simply use the available CDs and make them a qualified investment. A qualified investment is one in an IRA or pension plan.
  
  

Time Frame

• Even though your CD may be a five-year CD, if you take the money when the CD matures before you're 59 1/2, you will pay a penalty. Instead, you must either allow the CD to roll over for another period, in this case five years, or roll it into a different investment.
  
  

Misconceptions

• Some bank advertising leads consumers to believe that only banks have IRAs. In reality, almost any investment, except collectibles and life insurance, can go in an IRA. The paperwork is all that is necessary to make the investment an IRA. Of course, the individual also has to follow the rules of eligibility.
  
  

Size

• The maximum annual amount you can put into an IRA in 2010 is $5,000 but increases to $6,000 if you're 50 or older. There are no income limitations for a traditional IRA if you have no other pension plan. If you have an employer-sponsored pension available, you can only make a tax-deductible contribution to a traditional IRA if your income is below $65,000 if you're single. The amount you're allowed to invest starts to diminish for incomes of $55,000 and higher. If you're married filing jointly, your joint income must be below $109,000 and starts to diminish at $89,000. If you don't have a plan but your spouse does, the limits increase to $176,000 but start to phase out at $166,000. You can invest in a Roth IRA if your income is below $120,000 for singles with phaseout starting at $105,000 and $177,000 with phaseout starting at $167,000 for married filing jointly.
  
  

Features

• While not all IRAs are CD, nor are all CDs IRAs, some CDs are IRAs. Normally IRA CDs are available in smaller denominations but pay competitive interest rates. If you do have an IRA CD, you don't receive a bank early withdrawal penalty if you have a mandatory withdrawal at age 70 1/2.
  
  

Expert Insight

• CD IRAs have all the same benefits of any IRA but have less volatility than stocks or mutual funds. However, they also may not keep up with inflation the same way the higher risk investments do, so they may not be as appropriate for younger investors.