IRA CD vs Treasury Bills: The After-Tax Comparison
A 5.00% IRA CD and a 5.00% Treasury bill are not the same investment after tax. The IRA CD defers tax until withdrawal; the T-bill is taxable at the federal level but exempt from state tax. In a high-state-tax jurisdiction — California (13.3%), New York City (8.82%), Oregon (9.9%) — the T-bill's state-tax exemption can close most or all of the gap with a Roth IRA CD's tax-free withdrawal.
The Variables That Change the Math
Federal tax bracket (ordinary income for both IRA withdrawals and T-bill interest). State income tax rate (T-bill interest is state-exempt; IRA withdrawals are state-taxable in most states). IRA type (traditional = deferred tax; Roth = tax-free on withdrawal). Investment horizon (T-bill maturities run 4–52 weeks; IRA CDs typically 1–5 years). Whether the IRA is in accumulation phase (in which case the comparison changes).
The Comparison at 22% Federal, 0% State Tax
Traditional IRA CD at 5.00%: pre-tax return is 5.00%; post-tax at withdrawal is 3.90% (5.00% × 0.78). T-bill at 5.00%, 4-week maturity, reinvested: post-tax 3.90% (5.00% × 0.78). At zero state tax, the comparison is a wash. The IRA wins only if you expect to be in a lower bracket at withdrawal.
The Comparison at 22% Federal, 9% State Tax
Traditional IRA CD at 5.00%: post-tax at withdrawal is 3.45% (5.00% × 0.69, federal + state). T-bill at 5.00%, state-exempt: post-tax is 3.90% (5.00% × 0.78, federal only). The T-bill wins by 45 basis points annually in this scenario — a material difference on large balances. A Roth IRA CD at 5.00% wins both: 5.00% post-tax if funded with after-tax dollars and held to qualified withdrawal.
Practical Guidance
In states with no income tax (Florida, Texas, Nevada, Washington), the IRA CD versus T-bill decision is primarily about bracket arbitrage and liquidity. In high-income-tax states (California, New York, Oregon, Minnesota), T-bills have a meaningful after-tax advantage over traditional IRA CDs for deposits outside retirement accounts. Roth IRA CDs beat T-bills when: you are in a low bracket now, expect a higher bracket later, and are investing for retirement.
Frequently Asked Questions
Where can I buy Treasury bills?
Directly from the U.S. Treasury at treasurydirect.gov (no broker, no fee, minimum $100). Or through a brokerage account — Fidelity, Schwab, and Vanguard all offer T-bill auctions at no commission. The secondary market is liquid; you can sell before maturity through a brokerage account.
Do IRA CDs count toward the annual IRA contribution limit?
Yes. Funding an IRA CD is a contribution to the IRA. The 2026 contribution limit is $7,000 ($8,000 if you are 50 or older). If you have already maxed out your IRA for the year, you cannot add more to an IRA CD until the next calendar year.
Related Products
1-Year Certificate of Deposit
4.60–5.30%
as of May 2026
5-Year Certificate of Deposit
4.00–4.80%
as of May 2026
IRA Certificate of Deposit
4.50–5.20%
as of May 2026
Primary Sources
- [1] IRS Publication 590-A (IRA Contributions) — irs.gov
- [2] TreasuryDirect T-bill auction calendar — treasurydirect.gov
- [3] Tax Foundation: State Income Tax Rates 2026 — taxfoundation.org