Equity-Linked CDs

Q: I read your article on Equity based CD's. I am assuming that these are not a qualified way to shelter gains. Any interest earned would be taxable, is that right? If I wanted to pull some money from a qualified 401k and invest in these, I would also be taxed on the 401K withdrawal.

A: There is tremendous flexibility in the way that an IRA is invested. For instance, you can own stocks, bonds, mutual funds, real estate and what are called 'brokered' Certificates of Deposit.

A brokered CD is...
one that is offered by a bank but that can be purchased in a brokerage account. An equity-linked CD works the same way.

So you can't purchase it directly in your 401k, but you can roll money from a 401k to an IRA and purchase the equity-linked CD in that IRA. That way there aren't any taxes and penalties when the money is taken out of the 401k and there aren't any taxes on any earnings associated with the equity-linked CD.

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