This is the only comparison on this page that compares apples to oranges, and that's the point. A CD is a yield instrument. A Roth conversion is a tax-position move. The reason savers ask the question is they have $250K of cash and they're trying to decide between earning interest on it (in a CD) or using it to pay the tax on a Roth conversion of an equal IRA amount.
If you have $250K of cash AND $250K of IRA money, the Roth conversion strategy is: pay the tax on the conversion using your cash, leaving you with $250K in a Roth IRA growing tax-free forever, vs. $250K in a CD earning taxable interest plus a $250K traditional IRA still subject to RMDs. The right answer depends on (1) your current vs future marginal tax rate, (2) your time horizon, and (3) whether you'll need the cash for liquidity.
| Dimension | CD | Roth Conversion (Pay Tax With Cash) |
|---|---|---|
| Immediate effect | Earn ~4.40% taxable interest | Pay 22-37% tax now on converted amount |
| Long-term yield equivalent | 4.40% pre-tax, ~3.20% after 24% tax | Effective IRR depends on future tax rate; often 6-10% if conversion done at lower bracket than expected withdrawal bracket |
| Tax in retirement | Interest annually taxed | Converted Roth grows + withdraws tax-free |
| RMD impact | None on conversion | Removes converted balance from future RMD calculations forever |
| Liquidity | 5-year lockup | 5-year Roth conversion clock; principal withdrawable after age 59.5 (or 5 yrs from conversion if earlier) |
| Best income year for action | Any | Low-income year (between retirement and SS/RMDs) |
| Best for marginal bracket | Any | 22-24% now, expecting 32-35% later |
| Heirs | CD passes to estate, taxable interest | Roth passes tax-free to beneficiaries (10-yr distribution rule) |
| Reversibility | Mature with full principal | Irrevocable since 2018 tax law |
| Best for | Liquidity preservation, short horizon | High-income retirees with IRA RMD problem |
You're 62, retired, with $250K of taxable cash and $500K in a traditional IRA. Your current marginal rate is 22%. At 73, RMDs will push you into the 32% bracket. You have a 25-year horizon to age 87.
Option A: $250K in 5-year CD at 4.40%, leave IRA alone.
Year 1 CD interest: $11,000 taxable. After 22% federal + 5% state: $8,030 net. Over 25 years compounding at after-tax rate ~3.20%, $250K grows to ~$553K. The $500K IRA grows at 5% to ~$1.7M, then triggers RMDs at 73 taxed at 32-35%.
Option B: Convert $250K of IRA to Roth, pay $55K tax (22%) from cash, leave $195K of cash invested.
The $250K Roth grows tax-free at 5% to ~$847K over 25 years. The remaining $195K in CD grows at after-tax 3.20% to ~$432K. Combined: $1.28M. The remaining $250K traditional IRA (you only converted half) grows to $847K and faces RMDs at the 32-35% bracket, leaving $565K after tax. Total Option B: $1.28M + $565K = $1.85M.
Option C: Option A all the way.
CD strategy plus untouched IRA: $553K + $1.7M IRA minus 32% future tax = $1.16M total after tax.
Option B beats Option A by ~$690K over 25 years, because the converted dollar grows tax-free and avoids the RMD tax wall. The trade-off: paid $55K of tax in year 1 vs deferring it.
CDs: interest taxed annually at ordinary income rates.
Roth conversion: the converted amount is taxable as ordinary income in the year of conversion. Once in the Roth, growth and withdrawals (after 5-year aging and age 59.5) are entirely tax-free. There are no RMDs on the original owner's Roth IRA. Inherited Roths follow the 10-year distribution rule but are still tax-free.
The key tax variables: your CURRENT marginal rate vs your FUTURE marginal rate. Convert when current is lower; don't convert when current is higher. The 22-24% bracket is the sweet spot for most pre-RMD retirees in their 60s.
Convert in tranches, filling up the 22% or 24% bracket each year for 5-8 years, rather than one huge conversion that pushes you into the 32% or 35% bracket. This year-by-year tranche approach (called 'bracket filling') is the standard playbook.
For someone with non-IRA cash who's torn between conversion and CD, a hybrid: use part of the cash for a tranche conversion this year, put the rest in a MYGA at 5.40-5.85% to compound tax-deferred until next year's conversion tranche. The MYGA gives a higher locked rate than the CD and the deferral helps because you're not adding to next year's tax bill via 1099-INT.
This 'MYGA-funded Roth conversion ladder' is a tax-efficient way to bracket-fill conversions over 5-7 years without the cash spinning off taxable interest that pushes you into higher brackets during the conversion window.
This comparison reflects publicly available product information and approximate market yields as of the date stated above. CD, Treasury, bond, annuity, and money market rates change frequently: typically weekly for short-term instruments and monthly for annuities and bonds. Always confirm current values against the most recent issuer disclosure document, FDIC/NCUA insurance status, and the actual contract before purchasing. This is general education, not a personal recommendation or an offer of any product. Tax treatment described reflects U.S. federal and state law as of 2026 and is subject to change; consult a qualified tax professional. Hans Goldstein is an independent licensed insurance producer (NPN 20602398, CA Life License #4273294) appointed with multiple A-rated carriers; he does not sell CDs, Treasuries, mutual funds, or securities. No compensation has been received from any carrier or institution in connection with the publication of this comparison. FDIC insurance covers deposits up to $250,000 per depositor, per insured bank, per ownership category. State insurance guaranty fund coverage on annuities varies by state and is typically $250,000-$300,000 per owner per carrier. Past performance does not predict future returns.
Hans Goldstein is an Enrolled Agent, admitted to practice before the Internal Revenue Service. Not affiliated with or endorsed by the IRS. General education, not tax or legal advice for your situation.