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If you're saving for retirement, an IRA CD could be a great addition to your portfolio. IRA CDs work similarly to traditional CDs — the key difference is that an IRA CD also receives the tax advantages and follows the rules of the IRA in which it's held.

So, if you're interested in incorporating an IRA CD into your retirement savings plan, here's what you should know first.

When you contribute money to an IRA, those funds can be invested in a mix of assets, including stocks, bonds, and mutual funds. Some IRAs also have the option to open a CD, which means you can invest in a CD as part of your IRA holdings. If your IRA offers CDs, you can usually choose from a variety of terms ranging from a few months to several years.

Like other types of CDs, IRA CDs managed by banks and credit unions are typically insured for up to $250,000 (per person, per institution, per ownership category). They also mature at a pre-set date, after which the funds may be automatically rolled into a new IRA CD. If not, you'll need to choose if you want to invest the money in another asset within your IRA.

However, IRA CDs are different from traditional CDs in significant ways, mainly because most rules that apply to IRAs also apply to IRA CDs. That means you'll need to consider annual contribution limits and tax implications (more on this later) before depositing money in one of these accounts.

IRA CDs are unique from traditional CDs because they have characteristics of both CDs and IRAs. Here's a breakdown of what makes them different:

There's a fairly low limit on how much you can contribute to your IRAs each year, and IRA CD contributions are subject to that limit. For the 2026 tax year, the maximum you can contribute to an IRA if you're under age 50 is $7,500. For investors 50 and older, it's $8,600.

One way to invest more into your IRA CD is to use funds that are already in your IRA, since these funds don't count toward the IRS's annual limit.

Investing in IRA CDs can impact your income tax bill. IRA CDs are available for both traditional and Roth IRAs; the IRA type you have will determine if you're taxed on the money now or later. Here's how it works:

Traditional IRA CD: The money you contribute is not taxed until you make a withdrawal or take a distribution. This can reduce your tax bill up front, but you'll eventually pay taxes on both the principal (the amount you deposited) and on your returns when you pull out money in retirement.

Roth IRA CD: The money you contribute is subject to income taxes for the tax year you make the contribution. However, neither your principal or interest is taxed when you take a distribution.

Learn more: How to avoid taxes on CD interest

With most CDs, you have to pay an early withdrawal penalty if you want to access the money before the maturity date. With IRA CDs in particular, you could also face a penalty of 10% from the IRS if you make a withdrawal before you reach age 59 ½. That said, once your CD matures, you can move the money to a different fund within your IRA — you just can't withdraw it from your account until you reach retirement age.

Once you reach a certain age (70 1/2 to 73, depending on your birth year) you will have to take distributions from your IRA, whether from your IRA CD or other assets in the portfolio.

Banks and credit unions don't usually charge fees to manage CDs, but your IRA CD may be subject to various fees ranging from $0 to $50 a year.

The steps to open an IRA CD depend on which institution is managing the account, but the process should go something like this:

Find an IRA with CDs as an investment option: Check to see if your IRA gives you this option. Or you can compare IRA CD rates and fees at banks, credit unions, or trusted brokerages.

Provide documentation: Requested documents may include ID, your Social Security number, and bank account details.

Fund your IRA: Move funds into your account via electronic transfer, check, or rollover from another IRA.

Choose a CD: Review the available IRA CDs and choose which one you want to invest in.

Once the funds in your IRA CD mature, you'll need to ensure they're either rolled into a new CD or reinvested into another asset in your IRA. If you don't, the money will be held as cash and may not earn any returns.

CDs are a great place to keep your savings if you need the money back within the next few months or years. For that reason, traditional CD accounts are usually a much better choice than IRA CDs, since you can get the money back without a penalty long before you reach retirement age. Traditional CDs are also less likely to have fees than IRA CDs, and they're not subject to IRS contribution limits.

However, IRA CDs are worth considering if you meet these conditions:

You want to maximize your IRA contribution but need a low-risk investment.

The IRA CD matures after you reach the IRS's minimum age for penalty-free withdrawals (59 ½).

You need to take minimum distributions soon but want to avoid losing money by cashing out stocks, bonds, or mutual funds during a market downturn.

Learn more: Why a CD should be part of your retirement savings plan

An IRA CD can be a good idea, depending on your specific goals. For those saving for retirement, specifically, an IRA CD allows you to invest your money in an ultra-low-risk account and earn modest fixed interest income, all while enjoying the tax benefits that come from investing through an IRA.

However, if you're saving for a short- to medium-term goal, such as a vacation or down payment, a traditional CD may make more sense.

Yes — the interest income generated by an IRA CD is taxable. However, when you pay taxes depends on whether the CD is held in a traditional IRA or Roth IRA.

An IRA CD is very similar to a regular CD. The key difference is that an IRA CD is held in an Individual Retirement Account, so it's subject to annual contribution caps and withdrawal rules. But it also comes with special tax advantages.

If you’re looking for a safe place to store your savings, both a CD or an IRA could be a good choice. Here’s a breakdown of the key differences between a CD vs. IRA and which is better.

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A CD is considered a certain type of low-risk investment. Learn more about CD investments and how they can fit into your overall portfolio.

For those approaching retirement, "safe" investments like CDs or annuities can be appealing, but there are key differences you should know.

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