IRA CD vs IRA Money Market Fund — Which Is Right for Your IRA Cash?
The mechanical comparison
| Feature | IRA CD | IRA Money Market Fund |
|---|---|---|
| Rate type | Fixed for the term | Floating, resets weekly |
| Current 12-month equivalent | ~4.50-4.75% APY | ~4.30-4.80% 7-day SEC yield |
| Liquidity | Locked; break with 90-day EWP | Same-day to T+1 access; no penalty |
| Insurance | FDIC up to $250,000 | None — not FDIC, not SIPC for the yield |
| Underlying assets | Bank balance sheet | Treasury bills, agency paper, repo, commercial paper (varies by fund) |
| Net asset value | $1.00 always (deposit) | $1.00 target, but theoretically can "break the buck" (extremely rare) |
| Tax treatment in IRA | Tax-deferred (Trad) or tax-free (Roth qualified) | Identical — IRA wrapper drives tax |
| Best for | Known need-by date | Undefined need-by date or rising-rate expectation |
The "break the buck" question
Money market funds target a $1.00 net asset value but are technically not guaranteed to maintain it. In the modern era, only two money market funds have ever broken the buck: the Community Bankers US Government Money Market Fund (1994, paid out $0.96) and the Reserve Primary Fund (2008, paid out $0.97 after holding Lehman commercial paper). Both were institutional funds, not retail. Retail money market funds at Fidelity, Schwab, Vanguard, etc., have a 100% record of maintaining $1.00 NAV.
The 2010 SEC reforms further hardened money market funds: government and Treasury money market funds (which is what most retail IRA buyers hold) are restricted to Treasury and agency paper and have additional liquidity requirements. The practical risk to retail Treasury money market funds is essentially zero. They are not FDIC-insured, but the underlying assets are US government obligations, which is functionally a stronger backing than FDIC at the federal level.
When the IRA CD wins
- You know the date. If you need the money on May 15, 2027 to fund an RMD, buy a 12-month CD maturing on May 15, 2027 at today's locked rate. The money market fund could be lower or higher by then.
- You expect Fed cuts. If you expect short rates to fall over the next 12 months, the CD's fixed rate is the right call — you lock today's higher rate and the money market fund's yield drops as the Fed cuts.
- You want zero brain-cycle cost. Set-and-forget. The CD pays its rate, period. The money market fund requires you to occasionally check whether the yield is still competitive.
When the IRA money market fund wins
- You do not know the date. If the IRA cash is for "opportunistic deployment" (waiting for a market drop, waiting for a specific MYGA campaign rate, waiting for an inherited IRA distribution, etc.), the money market fund's floating yield + full liquidity is the right call.
- You expect Fed hikes. If you expect short rates to rise over the next 12 months, the money market fund's floating yield captures the rate increases as they happen. The CD locks you out of that participation.
- You hold the money in a Fidelity, Schwab, or Vanguard IRA already. The default cash sweep is often a money market fund — no transaction required.
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.
The hidden advantage of a brokerage IRA money market
Inside a Fidelity or Schwab IRA, your cash sits in a money market fund by default — SPAXX, FDRXX, or FZFXX at Fidelity; SWVXX or SNAXX at Schwab. These pay competitive yields automatically with no rebalancing required. The major brokerage default money market funds currently yield in the 4.30-4.80% range, which is competitive with the top of the bank IRA CD market on the 12-month tenor.
This means at Fidelity or Schwab, the marginal decision is not "money market vs CD" but rather "leave it in the default money market fund and stay flexible" vs "lock a CD for incremental rate certainty." The brokered CD route inside the same IRA can also be considered.
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 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.
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.