When I heard Navy Federal Credit Union was offering a 3% 37-month CD, which was only available in an IRA or ESA (Coverdell Education Saving Account), I decided to move part of my Traditional IRA from Fidelity to this CD. The yield on 3-year Treasury notes was about 1.4% at the time. I could just buy a CD in the brokerage account, but the best available 3-year brokered CD paid only 1.85%. A CD directly from a credit union paid much better. I’m writing down the transfer process in case you are curious how a partial transfer of an IRA from a broker to a credit union works.
I was already a member of the credit union. In order to transfer an IRA, I filled out an IRA Transfer form from the credit union. The form had an option to request a wire transfer from the current custodian. I marked that option, signed it, scanned it, and attached it to a secure message in online banking. The credit union’s customer service messaged back saying I should open an IRA Savings Account first, which I did online, with $0 funding, because I was not making a new IRA contribution. After I messaged customer service again, the representative said they were going to send the transfer paperwork to Fidelity by mail.
While the paperwork was in transit, I made the transfer amount available as cash in my Fidelity IRA. On the 6th business day after the credit union’s customer service said they were going to mail the paperwork, I received an alert from Fidelity saying that they received a transfer request. Fidelity sent the cash to the credit union by wire (free of charge) on the same day.
I saw the cash in the IRA Savings Account the next day. I opened a CD online, using the IRA Savings Account as the source of funding. That was it. I had the CD in an IRA at the credit union in a little over a week.
The transfer process is very easy if you are already a member of the credit union. If you must apply for new membership, it will add a few more steps. Still, you only do it once and then you are set for the next few years. If you see a good CD for your IRA, don’t be afraid to do a partial transfer.
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Shirley says
How many times in a calendar year can this be done?
Harry Sit says
No limits.
David Elkins says
Thank you for this interesting post; this is useful information. I am a big fan of NFCU, having been a member since 1985. Although I am a super conservative investor, I find it difficult to get excited about locking up my capital for 37 months in exchange for a 3% return (1.96% after taxes, for those of us in the 35% marginal tax bracket). A muni bond fund such as VWIUX offers liquidity and is currently paying a distribution yield of 2.75% (tax-exempt), with a risk profile that is imperceptibly higher than that of a CD. Am I missing something here?
TJ says
You’re apparently missing that it was in an IRA.
Harry Sit says
The SEC yield on this fund is only 1.28%. Investment advisor Rick Ferri said this about the SEC yield and the distribution yield:
“Here is the weight of importance you should give to each:
95% to 30-day Annualized SEC Yield
5% to Distribution Yield
I may have given much weight to Distribution Yield.
The difference between the two is a rough estimate of how much of your principal is being returned. Bond funds that have high coupons in a low-interest-rate environment return principal as part of their distribution yield as the bonds amortize toward par every month. This is not a gain for you.
Rick Ferri”
https://www.bogleheads.org/forum/viewtopic.php?p=4888327#p4888327
Gabriela says
I’d love to join NFCU. How did you or your wife as immigrants to this country and without family members in the U.S. join NFCU?
TJ says
NFCU has acquired other credit unions over the years. People get grandfathered in.
Harry Sit says
There was a short window three years ago when anyone could join by becoming a member of a supported organization. That window closed after a few months. As TJ mentioned, there was also another time when you could join a credit union that NFCU announced it would acquire. So if you hear that NFCU is acquiring another credit union, join the target and get absorbed into NFCU.
Melissa says
Hi. I also have access to 3% return in guaranteed income accounts (GIAs; liquid) in both my ROTH IRA and 403b (at Mutual of America and TIAA Traditional, respectively). Is one type of account preferable to the other to load up on that? (BTW: See article below that argues for keeping it in the 403b, saving the ROTH IRA for more growth.)
Or what would be the preferred stock/”bond*” allocation for each: ROTH IRAs, 403bs, and non-qualified accounts?
BTW: I am age 55, and going for a 60 equity/40 “bond” overall allocation. I have 12 month emergency fund in a credit union at 1.35 %.
And can I use those 3% funds* in place of my bond portion of my asset allocation? (The base of cash is guaranteed. There is no fund expense fee and a 3% minimum yield seems better than any of the bond funds. The 3% can go up in the future. They are liquid and I can move out of it into other mutual funds anytime I want.)
Another “safe” bond option in my 403b is the TIAA “real” real estate fund QREARX. Can that also act as part of my “bond” portion? (Does it “act” more like a stable/safe investment than a REIT or stocks? Or to what % extent do you think it can proxy for a “bond”?
Any thoughts on what would be a good % mix of the 3% GIA vs. bond funds vs. QREARX as part of my non-equity “safe” allocations?
Thanks for your thoughts.
As per this article: https://www.wallstreetphysician.com/keep-bonds-out-of-your-roth-ira/
“As a result, your goal should be to put asset classes with high expected returns, such as stocks, into the Roth IRA. This will maximize the Roth IRA’s value (which will not get taxed at retirement), relative to the value of the 401(k).
“On the other hand, you should put asset classes with low expected returns, such as bonds, into the 401(k). This minimizes the 401(k)’s value (which will be taxed upon withdrawal as ordinary income), relative to the value of the Roth IRA.” [Oct. 2018]
Melissa says
Hi again. BTW: If I may ask, what was your rationale for buying the CDs in your IRA, and how does that factor into your overall asset allocation and “location”? And is there a reason you did not want to take this opportunity to convert it to a Roth IRA, to get a “two-fer” out of doing the transfer?
Ah ah, I just found your 2018 post here: https://thefinancebuff.com/tax-efficient-asset-placement-difference.html.
I still welcome any feedback on how to characterize/classify these 3% GIAs in terms of asset allocation. Thanks.