IRA CD RMD Strategy — How to Cover RMDs Without Breaking CDs
The IRA RMD basics
- RMD age (SECURE 2.0): 73 for anyone turning 72 on or after January 1, 2023. Rises to 75 for anyone born in 1960 or later.
- RMD applies to: Traditional IRAs, SEP IRAs, SIMPLE IRAs, and inherited IRAs. Not to Roth IRAs during the original owner's lifetime (inherited Roths face the 10-year rule).
- First RMD deadline: April 1 of the year following the year you turn 73. (Subsequent RMDs are due December 31 each year.)
- RMD calculation: Prior-year-end IRA balance / IRS Uniform Lifetime Table factor for your age. At age 73 the factor is 26.5 (RMD = ~3.77%); at age 80 it is 20.2 (~4.95%); at age 90 it is 12.2 (~8.2%).
- Penalty for missing RMD: 25% excise tax on the shortfall (SECURE 2.0 reduced from 50%). Reduced to 10% if corrected within 2 years.
The IRA CD RMD challenge
A single $500,000 IRA CD locked for 5 years presents a problem at age 73: the first RMD is about $18,860 ($500,000 / 26.5). If the entire $500,000 is locked in a single 5-year CD, you have to either (a) break the CD entirely and pay the EWP, (b) take a partial withdrawal if the bank allows (many do not, on a single-deposit CD), or (c) miss the RMD and incur a 25% excise tax.
The bank's EWP on a $500,000 5-year CD at 4% is typically 12 months of interest on the withdrawn portion. To pull $18,860 for the RMD, the bank may calculate the EWP on either just the $18,860 withdrawn (smaller penalty) or on a pro-rated portion of the full CD (much larger penalty). The mechanics vary by bank — this needs to be confirmed in writing before you open the CD if you expect to face RMDs during the term.
Strategy 1: Build a 1-5 year IRA CD ladder
The cleanest solution. Split the $500,000 across 5 rungs — $100,000 each in 1, 2, 3, 4, and 5-year IRA CDs. Each year, the 1-year rung matures (~$104,500 with interest). You take the RMD ($18,860 first year) from the maturing rung and reinvest the remaining $85,640 into a new 5-year IRA CD. After 5 years, all rungs are 5-year CDs maturing one per year — the ladder is self-sustaining for RMD coverage indefinitely.
The advantage: no CD ever gets broken early. No EWP. No penalty. The disadvantage: blended yield is lower than a single 5-year CD because part of the balance is in shorter, lower-yielding rungs. The tradeoff is usually worth it for RMD-age IRA holders.
Strategy 2: Keep the RMD year's needs in cash/money market
Hold a separate IRA money market position equal to 1-2 years of expected RMDs. Take the RMD from the money market position each year. Replenish the money market from the maturing IRA CD at the next maturity event.
This works if the IRA CD is going to mature within 1-2 years of the RMD age trigger. It does not work for longer lockups unless paired with the ladder strategy.
Strategy 3: Use an IRA MYGA with RMD-friendly mechanics
Most A-rated IRA MYGA carriers explicitly allow penalty-free RMD withdrawal regardless of the contract's surrender period. The carrier calculates the RMD each year on the MYGA's prior-year-end value and lets you withdraw up to that amount without surrender charge. Some carriers process this as an automatic annual RMD payment; others require you to request it each year.
This is one of the structural advantages of an IRA MYGA over an IRA CD for RMD-age holders. You can hold a single 7-year IRA MYGA at ~5.65% APY without worrying about RMD liquidity — the carrier handles it. The IRA CD equivalent requires a ladder to achieve the same outcome.
Important: "RMD-friendly" is a carrier feature, not a regulatory requirement. Confirm in writing before the application that the specific IRA MYGA you are buying has the RMD-waiver provision. Most A-rated carriers do; some do not. Hans only places clients in MYGAs with confirmed RMD-friendly mechanics.
How IRA CD taxation actually works
This is the single most misunderstood point. An IRA CD is taxed like any other IRA asset, not like a taxable bank CD.
- Inside a Traditional IRA: Interest credited each year is not reported on your 1040. You do not get a 1099-INT for IRA CD interest. The CD compounds tax-deferred. You only owe tax when you withdraw — and withdrawals are taxed as ordinary income.
- Inside a Roth IRA: Interest is never taxed, provided your withdrawal is qualified (you are age 59½ or older and the Roth has been open at least 5 years).
- What you owe each year: Nothing. Zero. The annual 1099-INT that taxable CD holders receive does not apply to IRA CDs.
- What triggers tax: The withdrawal (Traditional) or a non-qualified Roth distribution. The CD's interest crediting cycle is irrelevant for tax purposes.
If you are under age 59½ and withdraw, two penalties can stack: the bank's early withdrawal penalty (typically 90–365 days of interest) and the IRS 10% additional tax on the withdrawn amount. The bank's penalty is enforced by the bank; the IRS penalty is enforced via Form 5329 on your tax return.
RMD on Roth IRAs — the planning angle
Roth IRAs have no RMD during the original owner's lifetime. This is one of the biggest planning advantages of Roth over Traditional — the Roth can compound untouched for decades while you spend Traditional IRA assets to meet RMDs and income needs.
Strategic conversion of Traditional IRA balance to Roth during the gap years (between retirement and age 73) reduces the size of future RMDs. Each $50,000 converted at age 65 reduces the age-73 RMD base by $50,000 plus growth — potentially $80,000-$100,000 by age 73 depending on growth rate — cutting the annual RMD by $3,000-$4,000 per year for life. The conversion itself is taxable in the year of conversion; the long-term tax savings come from the eliminated future RMD plus the tax-free Roth growth.
When a MYGA beats an IRA CD
An IRA MYGA (multi-year guaranteed annuity) is, in plain English, a CD-equivalent issued by an insurance carrier instead of a bank. Inside an IRA wrapper, both are tax-deferred — the tax wrapper is identical. The difference is the rate, the insurance backing, and the surrender mechanics.
| Feature | IRA CD (bank) | IRA MYGA (insurance) |
|---|---|---|
| Typical 5 years (RMD-ladder) rate (mid-2026) | ~4.30% | ~5.60% |
| Tax treatment inside IRA | Deferred | Deferred (identical) |
| Insurance / guaranty | FDIC $250K per depositor per bank | State guaranty fund, typically $250K–$300K per owner per carrier; backed by carrier balance sheet |
| Early access | Pay 90–365 days interest, get principal back | 10% free withdrawal annually most carriers; surrender charge on excess |
| Rate lock-in length | 3 months to 5 years typical | 3 to 10 years; 5-year is most common |
Worked example — $100,000 for 5 years:
- IRA CD at 4.30%: $123,430 at maturity
- IRA MYGA at 5.60%: $131,317 at maturity
- MYGA advantage: ~$7,886 over the 5-year period on the same starting balance
The rate gap exists because MYGA carriers hold longer-duration corporate bonds than banks hold; banks fund CDs primarily with short Treasuries. Inside an IRA — where you cannot use the principal for spending anyway until 59½ without penalty — locking up for the full term costs you nothing extra. The MYGA is structurally a better fit for IRA money the same way it is for taxable money, with one added consideration: the tax-deferred wrapper is "redundant" inside an IRA, but that does not make the MYGA worse — it just means you are paying for an insurance product purely on rate, not on tax shelter. And on rate, it usually wins.
See IRA CD vs MYGA decision guide and current best MYGA rates.
What happens at age 73 with RMDs?
Under SECURE Act 2.0, Required Minimum Distributions (RMDs) begin at age 73 for Traditional IRA holders (and SEP/SIMPLE IRA holders). Roth IRAs have no RMD during the original owner's lifetime. For an IRA CD, the practical issue is liquidity: if your full IRA balance is locked in a single 5-year CD, you may need to break the CD to take your RMD. Two solutions:
- Ladder. Hold multiple smaller CDs maturing in different years; pull RMD from the maturing rung. See IRA CD ladder strategy.
- RMD-friendly product. Most IRA MYGAs allow penalty-free withdrawal of the RMD amount each year — ask the carrier in writing before signing.
The RMD-coverage decision tree
- Are you in or approaching RMD age (73)? If no, you have flexibility to use any IRA CD structure. Plan ahead for RMD liquidity before you turn 73.
- Is the IRA balance < $250K? Single 5-year IRA CD or single 5-year IRA MYGA, take RMD from elsewhere if possible. The CD ladder is overhead at small balances.
- Is the IRA balance $250K-$1M? IRA CD ladder (5 rungs) or single IRA MYGA with confirmed RMD-friendly mechanics. MYGA usually wins on rate.
- Is the IRA balance > $1M? Split across 2-3 carriers (state guaranty fund stacking) and build the ladder or use multi-MYGA structure. Independent producer essential.
Related guides
- IRA CD vs MYGA — which is better for retirement
- IRA CD ladder strategy
- How to rollover a 401(k) into an IRA CD
- Using IRA CDs to cover RMDs
- Inherited IRA CD rules (SECURE Act 10-year)
- Best MYGA rates — 2026
Second opinion before you commit IRA money
Independent licensed producer. Hans Goldstein.
IRA money is retirement money — one bad rollover or product pick costs you years. Before you lock a 5-year IRA CD or sign a MYGA application, get a written side-by-side comparison from a licensed independent producer who is not paid by the bank or the carrier you are considering.
Drop your info — within 24 hours you'll get a written rate comparison (IRA CDs vs IRA MYGAs at your term), the IRS rollover rules that apply to your situation, and a no-pressure 15-minute call if you want one.
Hans Goldstein · 213-414-2808 · NPN 20602398, independent licensed insurance producer appointed with multiple A-rated carriers
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Disclosure
This review reflects publicly available product materials and approximate rates as of the date stated above. CD rates, IRA account fees, MYGA crediting rates, and IRS rules cited (RMD age 73 under SECURE 2.0, 10% early withdrawal penalty before 59½, Roth 5-year qualified distribution rule, post-2019 SECURE Act 10-year rule for non-spouse inherited IRA beneficiaries) are current as of the publication date and subject to change. Always confirm current rates with the issuer and current tax law with a CPA before opening, rolling over, or withdrawing from any IRA. This article is general information for educational purposes; it is not a personalized recommendation, tax opinion, legal opinion, or offer of any specific product. Hans Goldstein is an independent licensed insurance producer (NPN 20602398) appointed with multiple A-rated annuity carriers; he does not sell bank CDs and is not affiliated with any bank, credit union, or brokerage discussed in any review on this site. No compensation has been received from any bank, credit union, or brokerage in connection with this review. MYGAs are insurance products with surrender charges; bank CDs are FDIC-insured deposit products; credit union CDs are NCUA-insured share certificates. These are different product categories with different protections and trade-offs.