I converted my IRAs to Roths last year, and with the extension of the tax cuts*, I've decided to split the tax burden over 2011 and 2012, even though I can afford to pay them for 2010.

Given that I have this money that is not really mine, what would be some options for risk free returns I could get for one and two year time windows?

*Of course, Illinois just raised state taxes by 2%, which might make paying it all off in 2010 more attactive.

2 Answers 2


Money you need in less than 5 years should be saved not invested.

The only place I would be comfortable the money would be a money market account or Certificate of Deposit (CD). I usually go for the money market account because they pay at or close to CD rates and there are no restrictions on getting to the money. However in this case I might choose a CD to keep me from being tempted to borrow some of it for something else. But even after typing that I still think I would put it in a money market, because if interest rates rise they rise in the money market but not the CD, and I just don't think interest can go much lower.

  • 3
    This. There is no risk free investment, there is only risk free savings.
    – MrChrister
    Jan 22, 2011 at 19:48

US government bonds and bonds issued by companies with a safe track record and consistently high ratings, for the past years, by credit agencies. But the time line of your investment, which is quite short, maybe a factor of choosing the right bonds. If you are not going to touch the money then CD maybe an option or an interest bearing savings account.

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    Bonds go down in value when interest rates rise, interest rate are lower than they have been in almost 50 years they can't go much lower. Jan 22, 2011 at 17:42
  • @Larry - Bonds go down in value when IR increases, right. But after you have bought how does that affect you other than the yield which you maybe getting would be lower than that what others maybe getting. In the current environment I would be surprised if the US government decides to increase interest rates when it is trying to stimulate the economy. And the OPs time horizon is 1-2 years. Wouldn't make much of a difference either.
    – DumbCoder
    Jan 22, 2011 at 22:04
  • I would avoid bonds from even good companies. You never know when lightning is going to strike and your good company is suddenly bad. If you are going to stick your money something for a year or two, I would go for a CD as it is FDIC insured, or maybe short term Treasury bonds, though they have a higher minimum purchase than CDs.
    – chrisfs
    Jan 24, 2011 at 17:41
  • @chrisfs - I would surely be surprised if a AAA rated company goes bust in 1-2 years. And if you are looking at so bleak situations, don't rule out a nuclear holocaust and all your money goes up in smoke.
    – DumbCoder
    Jan 24, 2011 at 18:49
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    @Dumbcoder The question was for "risk-free investment or savings over one and two years". The closest thing you are going to get to risk free is an FDIC insured account or a US Treasury bond. Both of them are less riskier than any corporate bond you care to mention. That's finance 101. Sure there are plenty solid companies out there and the vast majority will not fail, but why even take that small chance that you will be incredibly unlucky? The person asked for risk free investments, corporate binds are, by definition, not risk free. They also cost commisions, whereas CDs and T-bonds do not.
    – chrisfs
    Jan 30, 2011 at 7:55

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