CD and RMD Strategy: Using CDs for IRA RMD Coverage
TL;DR
A CD ladder inside an IRA is a natural fit for RMD coverage. Stagger 5 rungs of 1- to 5-year CDs and take the annual RMD from each maturing rung, reinvesting the remainder into a new 5-year CD or MYGA. Most banks waive the EWP on RMD-amount withdrawals after age 73. For larger IRAs ($500K+), a hybrid structure works better: a small HYSA inside the IRA for the next 1 to 2 years of RMDs, plus a MYGA ladder for the long-horizon portion.
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CD vs MYGA, after tax
What $100,000 earns in 5 years: CD vs MYGA, after tax
Rates used: CD 4.50%, the top nationally available 5-year CD (DepositAccounts, September 24, 2026); change it to the rate you are offered. MYGA 5.95%, the best A-rated rate we track as of October 13, 2026: Delaware Life Pinnacle Plus 5-year (AM Best A-, negative outlook, 7/31/2026), $100,000 and up, effective October 6, 2026 (Delaware Life rate sheet).
| CD, interest taxed every year | $118,826 |
|---|---|
| MYGA, tax-deferred, before tax | $133,507 |
| MYGA after paying tax on all the interest at withdrawal | $126,136 |
| Tax deferral alone adds about | $674 |
| MYGA ahead of the CD, after tax | $7,310 |
Assumes 22% federal and 0% state income tax, no withdrawals, rates held for the whole term. MYGA interest is taxed as ordinary income when you withdraw it, not as capital gains. Gains taken before age 59 1/2 can owe a 10% IRS penalty, and cashing out early can cost a surrender charge. In an IRA both grow tax-deferred, so the edge there is the rate alone. Bank and credit union deposits are FDIC or NCUA insured up to the limits; a MYGA is backed by the issuing insurer's claims-paying ability and your state's guaranty association up to its limits, not the FDIC. General education, not tax, legal or financial advice.
The RMD math, briefly
Under SECURE 2.0, RMD age is 73 for individuals born 1951-1959 and 75 for those born 1960 or later. Each year's RMD equals the prior December 31 IRA balance divided by the IRS Uniform Lifetime Table factor for your age.
| Age | Factor | RMD % of balance | Annual RMD on $500K |
|---|---|---|---|
| 73 | 26.5 | 3.77% | $18,870 |
| 75 | 24.6 | 4.07% | $20,330 |
| 80 | 20.2 | 4.95% | $24,750 |
| 85 | 16.0 | 6.25% | $31,250 |
| 90 | 12.2 | 8.20% | $40,980 |
The RMD percentage rises every year. CD planning needs to accommodate growing annual distributions even as the underlying IRA balance declines.
The 5-rung RMD-aligned ladder
A 5-year CD ladder inside an IRA produces one maturity per year. Align each maturity with your typical RMD month (e.g., November, to give time for processing before December 31 deadline). At each maturity:
- Withdraw the year's RMD amount as a distribution from the IRA.
- Reinvest the remainder of the matured rung into a new 5-year CD or MYGA inside the IRA.
- If the matured rung is larger than the RMD, the leftover stays in the IRA and continues earning interest.
- If the matured rung is smaller than the RMD, withdraw the additional RMD amount from another IRA position (cash account, money market, or the next-shortest rung).
Worked example. $500K IRA, 5-rung ladder of $100K each at 1-5 years. Annual RMD at age 73 is $18,870.
- Year 1: 1-year rung matures at $104,700 ($100K + $4,700 interest). Take $18,870 as RMD; reinvest $85,830 into a new 5-year CD.
- Year 2: 2-year rung matures at $109,300. Take $19,500 RMD (recalculated on year-end balance); reinvest $89,800.
- Year 3: 3-year rung matures at $113,500. Take $20,200 RMD; reinvest $93,300.
- And so on. Each maturity covers that year's RMD with substantial principal remaining for reinvestment.
The ladder produces a self-funding RMD machine for as long as the maturity-per-year cadence is maintained.
The EWP-waiver-on-RMD rule
Most banks and credit unions waive the early withdrawal penalty on IRA CDs when the withdrawal is RMD-amount and the depositor is past RMD age. The waiver is typically conditional:
- Withdrawal amount cannot exceed the annual RMD calculated for that IRA.
- Depositor must be at or past RMD age (73 in 2026 for most).
- Withdrawal must be coded as an RMD distribution, not a discretionary withdrawal.
This waiver provides flexibility if a CD does not mature in time for the RMD deadline. You can pull the RMD from a non-mature CD without losing interest to the EWP.
The aggregation rule
For multiple traditional IRAs (and IRA CDs at multiple institutions), the IRS aggregates the total RMD calculation across all of them, but you can take the entire RMD from any one IRA. This is a powerful planning tool.
Practical implication. If you have $400K of IRA CDs at one bank and $100K at another, you can take the entire RMD from whichever account is more convenient. Many retirees keep a small cash or money market IRA at one institution specifically to fund the annual RMD without disturbing the CDs.
This aggregation does not apply across IRA types. Traditional IRA RMDs aggregate; 401(k) RMDs do not aggregate with IRAs (each 401(k) RMD must come from that plan). Roth IRAs have no RMDs.
The cash-bucket alternative inside the IRA
For retirees who do not want maturity timing to drive RMD logistics:
- Keep 1 to 2 years of projected RMDs in a high-yield savings account inside the IRA. At 4.50 percent, this earns reasonable yield with full liquidity.
- Run a longer-horizon CD or MYGA ladder for the remainder of the IRA. Maturities can be longer-spaced (e.g., 3-, 5-, 7-year rungs) because the cash bucket handles annual distribution needs.
- Refill the cash bucket each year from maturing ladder rungs or from interest credits.
This is operationally simpler at the cost of slightly lower blended yield because the cash bucket earns less than the ladder.
The MYGA-anchored RMD structure
For larger IRAs and longer horizons, replacing CD rungs with MYGAs improves yield meaningfully without losing RMD functionality:
| Structure on $500K IRA | Blended yield | 10-yr interest | RMD coverage |
|---|---|---|---|
| 5-rung CD ladder, 1-5 yr | ~4.48% | ~$280,000 | Annual maturity |
| 3-rung MYGA ladder, 3-5-7 yr | ~5.48% | ~$362,000 | RMD waiver on most contracts |
| Hybrid: $100K HYSA + 3-rung MYGA | ~5.28% | ~$345,000 | HYSA handles 5+ years of RMDs |
The MYGA-anchored structure adds roughly $65,000 to $82,000 of interest over a 10-year horizon versus the pure CD ladder on $500K. The trade is FDIC versus state guaranty association coverage and the requirement to plan RMD coverage through partial withdrawals or contract maturity rather than rung maturity.
Most A-rated MYGAs allow RMD-amount withdrawals without surrender charge, making them functionally equivalent to CDs for RMD purposes while delivering substantially higher yield.
The QCD optimization (age 70.5+)
Qualified Charitable Distributions allow IRA owners 70.5 and older to transfer up to $108,000 (2026 indexed limit) directly from the IRA to a qualified charity. The QCD counts toward the RMD and is excluded from gross income.
For charitably inclined retirees, QCDs can satisfy RMDs without generating taxable income. This effectively converts the RMD from a taxable event to a tax-neutral charitable gift. CD ladder maturities can fund QCDs the same way they fund cash RMDs.
Common RMD-and-CD mistakes
- Forgetting that the IRS aggregates traditional IRA RMDs. Calculating RMD per-account and forcing each CD to match its own number is operationally painful and unnecessary.
- Locking too long without RMD coverage. A 5-year CD in an IRA for a 73-year-old needs to consider that 5 RMDs need to be funded during the CD's term.
- Assuming the EWP waiver applies to everything. The RMD-amount waiver is specifically RMD-amount; larger withdrawals trigger the EWP.
- Ignoring the December 31 deadline. First-RMD-year flexibility (April 1 of following year) only applies once. After that, December 31 each year is a hard deadline with a 25 percent excise tax for misses.
- Not coordinating across IRA types. Traditional IRA RMDs do not interact with Roth IRA balances (Roths have no RMD during the original owner's life). Inherited IRA rules are entirely different.
When this strategy beats simpler approaches
- You have a defined annual cash need from the IRA (which is everyone past RMD age).
- You want to avoid market-timing risk on the RMD source. CDs and MYGAs eliminate the "sell stocks in a down market to fund RMD" problem.
- You prefer predictability over yield maximization. The RMD-aligned ladder is the lowest-volatility approach.
When simpler is better
- You have plenty of cash inside the IRA (money market, HYSA) to fund RMDs and want to leave CDs untouched.
- You prefer a single long-horizon position (one 5-year MYGA, with RMDs taken from a separate cash bucket).
- The IRA is small enough that the operational complexity of a 5-rung ladder outweighs the diversification benefit.
Operational checklist for RMD-funding CDs
- Confirm RMD age and calculate the upcoming year's RMD by January.
- Verify the EWP-on-RMD waiver in writing for each IRA CD.
- Set the RMD distribution to process at least 30 days before December 31 to handle holiday delays.
- Decide whether to take the RMD as cash or via QCD if charitably inclined.
- Coordinate withholding (federal and state) on the RMD distribution to satisfy tax safe harbor.
- Reconcile the year's 1099-R against the RMD calculation by February.
- For MYGAs in an IRA, verify the RMD-friendly withdrawal language in the contract.
Related guides
- IRS rules for CD interest
- CD ladder vs MYGA ladder
- CD survivor options and inherited IRAs
- $500K CD ladder construction
Frequently asked follow-up questions
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Disclosure
This article reflects publicly available CD, savings, and annuity rate information approximate to the date above. Rates change frequently, often weekly. Always confirm current rates directly with the institution before opening, renewing, or transferring. This is general educational content, not a personalized recommendation, solicitation, or offer of any specific product. Hans Goldstein is an independent licensed insurance producer (NPN 20602398) appointed with multiple A-rated carriers in the fixed-annuity market; Goldstein & Co. LLC is not a bank, broker-dealer, or registered investment adviser. CDs are deposit products of FDIC-insured banks or NCUA-insured credit unions; annuities are insurance contracts backed by the issuing carrier and state guaranty associations. FDIC and NCUA insurance limits are typically $250,000 per depositor per institution per ownership category. Tax discussion reflects federal law as of 2026 and is subject to change; consult a tax professional for your situation.