What Is a Roth IRA CD?

Roth IRA CDs Explained in Less Than 5 Minutes

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A Roth IRA CD is a certificate of deposit (CD) that's held within a Roth individual retirement account (IRA). An investor might gain certain tax advantages by holding a CD within a Roth IRA.

A Roth IRA CD is a certificate of deposit (CD) that's held within a Roth individual retirement account (IRA). An investor might gain certain tax advantages by holding a CD within a Roth IRA. But you must first qualify for a Roth IRA account before you can purchase a Roth IRA CD. Certain rules apply.

Key Takeaways

  • A Roth IRA CD allows individuals to invest in a CD within a Roth IRA structure.
  • Roth IRA CDs can help individuals gain retirement income in a tax-advantaged way.
  • You must still meet the regular eligibility requirements for Roth IRAs to open a Roth IRA CD.
  • You can't invest in a Roth IRA if you earn too much.

How a Roth IRA CD Works

You can't make contributions to a Roth IRA account if you earn $144,000 or more as a single filer or $214,000 or more if married filing jointly in 2022, but these limits tend to increase annually. They go up to $153,000 and $228,000 for the 2023 tax year.

The longer the term of the CD, the higher the interest rate it will generally pay. But committing to a five-year Roth IRA CD instead of a one-year CD means that your money is locked up for a longer period of time. You often have to pay a penalty that negates some of the interest earned If you want to withdraw funds before the CD matures. But you might be able to at least withdraw the interest you earn from the CD without paying a penalty if you keep the principal invested.

Example of a Roth IRA CD

A Roth IRA CD essentially combines a Roth IRA with a CD. A Roth IRA is a type of retirement account that allows individuals to contribute post-tax money, which can then grow tax free and be withdrawn tax free if some conditions are met.

A certificate of deposit or CD is a type of savings account that provides a predetermined interest rate in exchange for holding a given amount of money in that account for a certain period of time. This might be a few months or several years, depending on the CD.

A CD within a Roth IRA structure means that the account holder can receive interest from a CD within the Roth IRA rather than within a regular CD account at a bank.


A Roth IRA CD differs from a traditional IRA CD which involves CDs within a traditional IRA account. They have different tax treatments. Funds withdrawn from a traditional IRA are taxable. 

The interest you earn can eventually be withdrawn tax free if you hold a CD within a Roth IRA. The difference between paying taxes on interest from a CD and earning tax-free interest within a Roth IRA might not seem like much, but it can add up.

Let's say that you manage to save $1 million, which you might be able to achieve through a lifetime of saving and investing. Earning just 1% interest per year on that $1 million would result in $10,000 of interest earned. You would be taxed $2,000 on that $10,000 of interest income if you paid taxes at an effective rate of 20%

But that full $10,000 in interest could be withdrawn tax free from a Roth IRA CD in retirement if you’re at least 59½ years old and you meet the five-year holding rule for Roth IRAs. So a Roth IRA CD could save you $2,000 in taxes per year in this scenario, compared to taxable interest on a CD that's held outside of a Roth IRA.

What a Roth IRA CD Means for Individuals

Roth IRA CDs might be an attractive option for some individuals, such as if you’re nearing retirement age or you're already retired and want to earn some interest without taking on too much risk. Your principal might be at risk if you invested in other assets within your Roth IRA, such as stocks. But you can protect your principal by investing in CDs, including Roth IRA CDs, at financial institutions that are insured by the FDIC.

There are still some risks associated with Roth IRA CDs. You might not earn much on your principal compared to other investment opportunities, and you might not have as much liquidity as you’d like. One way to overcome this risk is to use strategies like building CD ladders, where you invest in CDs of varying lengths. 


Given the many investment considerations and tax implications of Roth IRA CDs, you may also want to speak with a professional to weigh your options.

Frequently Asked Questions (FAQs)

Are there any limits as to how much I can save in a Roth IRA each year?

There's an annual limit as to how much you can contribute to any IRA in a given year. It was $6,000 in 2022, increasing to $7,000 for those who are age 50 or over. It goes up to $6,500 and $7,500 respectively in 2023. But this cap applies to all your IRAs collectively. You can't save $6,500 to a Roth IRA and $6,500 to a traditional IRA. You must divide that $6,500 between them.

Where can I open a Roth IRA CD?

You can open a Roth IRA CD with a financial institution that offers these accounts if you're eligible and meet the income limitations. And you might be able to access CDs through your current Roth IRA provider in some cases, but it's possible that you'll have to roll funds from one Roth IRA provider into another that offers Roth IRA CDs. You can deposit funds with the Roth IRA CD provider and choose the type of CD you want to open from there.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. IRS. "Amount of Roth IRA Contributions That You Can Make for 2023."

  2. IRS. “Amount of Roth IRA Contributions That You Can Make for 2022.”

  3. IRS. “Traditional and Roth IRAs.”

  4. IRS. "401(k) Limit Increases to $22,500 for 2023, IRA Limit Rises to $6,500."

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