Rolling over 457 / 401(k) to IRA CD at age 71?

[wjgrayson]

My wife (age 71) is considering rolling over both her 401(k) and 457 into traditional IRA CDs by the end of 2022.  She will be 72 in June 2023.   We're aware that she'll be required to take RMDs after she turns 72.   Is it 1) allowed, and 2) if allowed, is there a benefit to doing so?

[Critter-3]

 Is it 1) allowed   YES ... a roll over to an IRA is allowed

2) if allowed, is there a benefit to doing so?  In the IRA you can choose different investment options which may or may not be better than what you already have.   Rolling both into one IRA account will simplify your life by having just one IRA but do you want all your eggs in one basket ?

[fanfare]

Since she will be 72 an RMD in 2023 is required but the first RMD gets a grace period to the next April 1 2024,

so she can buy one-year CDs that mature by that time.

BUT I suggest it's better to take a 2023 RMD in 2023 so quarterly CDs would be in order.

After that she needs to raise cash in 2024 for the 2024 RMD ..

@wjgrayson 

Note: the CDs that have to mature are the ones that add up to the RMD amount, not the entire IRA value.

That doesn't simplify your accounting life, it makes it more complex.

[NCperson]

@wjgrayson - rolling everything to one IRA will simplify your life.  Not sure what additional risk you are taking on by rolling it together, unless it is 'counter party' risk. 

  @Critter-3 - what risk are you suggesting?

Counter-Party risk is the only risk I can think that increases by merging two IRA's at one custodian.  But if that custodian is a federally insured US bank or a  brokerage house that is SIPC insured, I can't see that risk is worth worrying about. 

Now, if the IRA's custodial trustee  is  Big Benjamin's 3 Ball Pawn Trustee, then I can see the potential hazards and risk!  

[Critter-3]

SIPC insurance limitations  is per account/custodian situation  so depending on the amount of the account value sometimes it is necessary to divide the total into more than one bank.  I have several clients who have a large net worth who would love to consolidate into one bank however they must have 20+ accounts/brokers so they don't hit the SIPC insurance limitations. 

[dmertz]

@fanfare , all of the IRA CDs offered by the banks that I'm familiar with waive the CD early-withdrawal penalty for the distribution of amounts that satisfy the RMD for any of the individual's IRAs at that particular bank, so no need to ladder CDs for the purpose of being able to take distributions of RMDs.  One might still want to ladder CDs so that one has an opportunity to take out more than the RMD in a given year without incurring an early-withdrawal penalty.