How “Safe” Is Your CD?

Certificates of deposit (CDs) are intended for the ultra-conservative investor.  Why are they appealing to so many?  They are touted as the “safe” investment option with essentially no risk as they are not tied to the stock market.  However, how “safe” are they really if, when you do a little math, you are actually losing out on money due to inflation and taxation?

Here are the hard facts:
•    For the past 7 years in a row, the average six-month CD rate has been less than 1%.
•    For the past 7 years in a row, CDs have earned a negative “real” return.
•    CDs have had a negative “real” return for 16 out of the past 30 years.

Knowing the truth about CDs is very important.  You can lose purchasing power with a CD when you factor in inflation and taxes.  Most banks don’t talk about this aspect and we believe CD owners have a right to know what they really own.  The bottom line is, “safety” doesn’t matter a whole lot if your overall rate of return is negative.  The “real” rate of return on a CD requires you to factor in inflation (based on the Consumer Price Index [“CPI”]) and your real tax rate. 

To find out the truth about your CD and other safe options that are available to consumers, give your retirement distribution expert a call for a complimentary evaluation.  This is your hard earned money and you should keep it!

IRA Custodians: What You Need to Know

Although the IRS has set forth the duties required of non-bank trustees in Internal Revenue Code Section 408(a)(2), not all custodians are regulated by the IRS.  Some custodians don’t even ensure that an IRA complies with the law.  When there is a problem, a court often sides with the errant custodian.  If IRA custodians can be let off the hook so easily, what’s an investor to do?

IRA owners expect that the custodian they hire will prevent them from engaging in prohibited transactions and help them satisfy other requirements such as taking annual RMDs.  We are now seeing that some custodians don’t do those things at all. To the contrary, some self-directed IRAs being touted on the Internet are even promoting transactions that could be interpreted as self-dealing (and in violation of the law).

There is one thing clients can be sure of...if an IRA is scrutinized by the IRS and found to be in violation, it is not usually the custodian that will be on the hook.  If the IRA is disqualified, it will result in a taxable distribution of the entire account and the IRA owner will be subject to taxes and possible early distribution penalties.

As part of your overall retirement planning checkup, make sure your IRAs are with custodians who allow beneficiary flexibility. If your custodian doesn’t offer what you want, consider finding a custodian who is multi-generational friendly.

IRA Custodians: Some General Areas of Questioning
Entity Details
Who are you (bank, brokerage firm, nonbank trust company) and how are you regulated? How are you insured (FDIC, SIPC)? Do you have errors-and-omissions insurance? Are you audited? How and by what entity? When was the last audit completed?

Accounts
How are accounts managed?  How are investments processed?

Costs
What are your fees? Do your annual fees include all charges, or are there any hidden fees for transactions or for administration costs or uninvested cash? Do you charge based on each transaction, or on the value of the account?

Forms
Do you require your own beneficiary form, or will you accept as valid a detailed, customized beneficiary designation created by an attorney or advisor?

Distributions
In the event of death, will you permit beneficiaries to receive payments over the period permitted by tax law and IRS rules and regulations, or will you mandate a shorter payout period?