Can You Transfer an IRA to a CD Without Paying Taxes?

You can transfer an IRA to a CD without paying taxes by using a direct trustee-to-trustee transfer, which moves the money straight from your current IRA custodian to the bank or credit union holding the new IRA CD. Because the funds never pass through your hands, the IRS does not treat the move as a distribution: no tax is owed, no withholding is triggered, and there is no limit on how many times you can do it in a year.¹ A second method exists, the 60-day indirect rollover, but it introduces risks with no offsetting benefit when you are simply shifting funds between custodians.

Why the Direct Transfer Is Tax-Free

A trustee-to-trustee transfer is essentially invisible to the tax system. The IRS does not classify it as a distribution or a rollover, so none of the rules that come with those categories apply.¹

Three consequences follow. No tax is withheld, because no distribution occurs. There is no 60-day deadline to track. And direct transfers are not subject to the one-rollover-per-year rule, so you can move IRA money between custodians as often as you like in a single year.² Even if the sending custodian writes a check payable to the new custodian and hands it to you to deliver, the IRS still treats that as a trustee-to-trustee transfer rather than a distribution, because the check is not made out to you.¹

This works the same way whether you hold a Traditional IRA or a Roth IRA. The direct transfer preserves whichever tax treatment your account already has. A Traditional IRA CD keeps growing tax-deferred; a Roth IRA CD keeps growing tax-free.

The 60-Day Indirect Rollover and Its Risks

An indirect rollover means your current custodian pays the money to you, and you personally redeposit it into a new IRA within 60 calendar days. Meet the deadline and the transaction is tax-free.³ Miss it, and the entire amount becomes a taxable distribution for that year.⁴

There is also a withholding trap. When a custodian pays IRA funds directly to you, federal law requires them to withhold 10% for income taxes unless you elect out.⁵ If you don’t elect out, only 90% of the balance reaches you. To complete a fully tax-free rollover of the original amount, you have to make up that 10% out of your own pocket when you redeposit. You get it back at tax time, but you are covering the gap in the meantime.

The one-per-year rule is the third risk. You can only do one indirect rollover across all of your IRAs (Traditional, Roth, SEP, and SIMPLE combined) in any 12-month period.² A second indirect rollover inside that window is treated as a taxable distribution, and if you are under 59½, the 10% early withdrawal penalty applies on top.⁶

For a routine move from an IRA into a CD, none of this risk is worth taking. Use the direct transfer.

How to Execute the Direct Transfer

Start at the receiving end. Contact the bank or credit union where you want to open the IRA CD and tell them you need to open an IRA CD account funded by a direct transfer from another institution. Their IRA department will provide the account opening paperwork and a transfer authorization form.

The transfer authorization form is the document that does the work. It instructs your current custodian to send the funds directly to the new bank. You will need your current IRA account number, the exact dollar amount or a designation of the full account balance, and explicit language specifying a trustee-to-trustee transfer. Some relinquishing custodians also require their own outgoing transfer form, so confirm with both institutions what each side needs before you send anything.

Account titling matters. The new IRA CD must be registered in the custodian’s name “For the Benefit Of” (FBO) you as the account holder. That titling confirms the CD is held as a retirement asset rather than a personal deposit. If it ends up titled in your personal name without the IRA or FBO designation, it loses its tax-sheltered status.

Once you have submitted the signed paperwork, the receiving bank coordinates with your current custodian. The old custodian liquidates whatever investments you held and wires or mails the funds directly to the new bank. Expect one to three weeks, sometimes longer if paperwork is incomplete or the relinquishing custodian is slow. Follow up with the receiving bank to confirm the funds arrived and were deposited into the IRA CD.

Bank Penalties Are Not IRS Penalties

People routinely confuse two very different penalties, and it matters here because the direct transfer avoids one of them but not necessarily the other.

A bank early withdrawal penalty is a contractual fee the bank charges when you break a CD before its maturity date, typically a forfeiture of several months’ worth of interest. It exists whether the CD sits inside an IRA or not, and it has nothing to do with the IRS. If you are transferring out of an existing IRA CD before it matures in order to move to a new IRA CD, the bank can still charge its penalty. But because the funds stay inside the IRA wrapper, no tax consequences follow.

The IRS 10% early distribution penalty is separate. It applies only when money actually leaves the IRA before you turn 59½ and you don’t qualify for an exception.⁶ Moving money between investments inside an IRA, or from one IRA custodian to another, does not trigger it.

What Goes Wrong, and When the IRS Grants Relief

The most common failure is missing the 60-day deadline on an indirect rollover. Once day 61 arrives without the money landing in a new IRA, the full amount becomes taxable income for that year, and the 10% early distribution penalty stacks on if you are under 59½.⁴ The distributing custodian reports the payout on Form 1099-R whether or not you completed the rollover, and the IRS matches that form against your return.⁷

Attempting a second indirect rollover inside the same 12-month period is the other common trap. Because the rule aggregates all of your IRAs, a rollover from a different IRA account still counts.² The excess amount is treated as a taxable distribution and may also be treated as an excess contribution subject to a 6% excise tax for each year it remains in the account.

If you miss the 60-day deadline for a legitimate reason, the IRS offers a self-certification process that can save the rollover. Revenue Procedure 2020-46 lists qualifying circumstances, including a bank error in processing the rollover, serious illness of the taxpayer or a family member, a death in the family, a misplaced check that was never cashed, severe damage to your home, and postal errors.⁸ You self-certify the reason in writing to the receiving custodian and complete the rollover as soon as the issue is resolved. The IRS can still challenge the certification later.

The waiver does not help if you simply forgot, spent the money, or missed the deadline through poor planning, and it is not available if the IRS has already denied a waiver request related to the same distribution.⁸ The direct transfer avoids the entire question. No deadline, no waiver needed.

Inherited IRAs Follow Different Rules

If you inherited the IRA, the tax-free transfer options depend on your relationship to the original owner. A surviving spouse can roll an inherited IRA into their own IRA and then move it into a CD using any of the methods above, including the 60-day indirect rollover.

Non-spouse beneficiaries have no indirect rollover option at all. The only way to move an inherited IRA into a CD without triggering immediate taxes is a direct trustee-to-trustee transfer into an inherited IRA CD account. If a non-spouse beneficiary receives a check from the inherited IRA, that money is taxable as ordinary income and cannot be redeposited into an inherited IRA afterward.⁹ There is no 60-day grace period and no second chance.

Non-spouse beneficiaries who inherited from someone who died in 2020 or later must also empty the account within 10 years of the original owner’s death.⁹ That clock matters when you pick CD terms: a seven-year CD started three years into the distribution window matures after the deadline. Match CD maturities to the remaining timeline, and keep enough liquid to cover any required distributions along the way.

1
Internal Revenue Service. Publication 590-A (2025), Contributions to Individual Retirement Arrangements (IRAs)
2
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
3
Office of the Law Revision Counsel. 26 U.S.C. 408 – Individual Retirement Accounts
4
Internal Revenue Service. Retirement Plans FAQs Relating to Waivers of the 60-Day Rollover Requirement
5
Office of the Law Revision Counsel. 26 U.S.C. 3405 – Special Rules for Pensions, Annuities, and Certain Other Deferred Income
6
Office of the Law Revision Counsel. 26 U.S.C. 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
7
Internal Revenue Service. About Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
8
Internal Revenue Service. Revenue Procedure 2020-46
9
Internal Revenue Service. Retirement Topics – Beneficiary