Let’s say you opened up a $5,000, 5-year IRA CD. Let’s presume a rate of 4.50% APR / 4.59% APY. At the end of 5-years, you will have earned $1,258. If this is a traditional IRA, you won’t pay taxes on the $5000 you put in or the interest earned. If we assume a combined Tax Rate of 25% that is a tax savings of $1,564.74. Of course you can’t touch these funds until you are 59 1/2. If you open up a Roth IRA you pay taxes on the $5,000, but not the earnings and I believe you can actually withdraw from a Roth at any time. You do pay taxes on the withdrawals. The Tax savings on just the interest is $314.00.

If you open up the $5,000 in a non-IRA CDand the rate is higher, say 5.00% APR / 5.11% APY you will earn $1416. You’ll owe $350.00 in taxes so the IRA is better in that respect (by about $200). Also with regular CDs, you actually owe the taxes at the end of each year, regardless of whether you have received the interest or not.

The real power of an IRA is the earnings grow tax free. You only pay taxes after you retire and only on what you withdraw. Also, typically when you retire you are in a lower tax bracket so the tax rate at that point would be lower.

I have to leave a disclaimer. We are not tax professionals, so it is always best to consult one if you have questions.

I hope that heps.
cd :O)

I’m not exactly what you are asking. But a federally, NCUA insured credit union follows the same insurance rules that FDIC insured banks do. So an IRA at a federally insured credit union would be insured for up to $250,000.

If the credit union were to fail you would receive your funds back just like you would if it were an FDIC insured bank.