How to best utilize cash in a traditional IRA

[timf33]

I have a self directed IRA which has a lot of cash siting in a FDIC insured account earning .35% interest. I'm old enough to withdraw from the IRA without penalty and am considering taking cash out of the IRA and depositing it into an online savings account which is currently paying 3.6% apr. To avoid including this money as income at the end of the year I'm thinking that I could use it as a year end contribution back into the same IRA or even open a new IRA for myself and one for my spouse.

My goal is to safely put that cash to work. Thoughts?

[Bsch4477]

This site addresses tax law and helps TurboTax users. It is not a good idea to accept financial planning advice from an anonymous poster who cannot know your overall financial situation even though they might be well meaning. 

[ThomasM125]

What you propose is allowable, and it may benefit you as long as you qualify to make deductibe contributions to an IRA account. Of course, you have to qualify to make penalty free distributions as well. One drawback is that if you qualify for a savers credit on contributions to your retirement accounts, you would need to subtract the amount of your distribution from the amount you contribute to determine the contribution amount for the credit. So, you may be denied the savers credit. The savers credit would apply to income under $34,000 for a single filer and $68,000 for married filing joint.

[timf33]

Thank you for your counsel. You've given me some very practical points to consider.