Taxes

• If you purchase a CD, you must pay taxes on any interest that CD generates. The bank sends you a 1099-INT form showing the amount of interest you earned, and you must report that interest when you file your taxes. With a Roth IRA, on the other hand, you do not have to pay any federal income taxes when you take the money out in retirement. This tax-free status makes the Roth IRA one of the best vehicles you have for building long-term retirement savings. Unlike a traditional IRA, you do not get a tax deduction for a Roth, but the tax-free retirement income can more than make up for the lack of an upfront tax break.
  
  

Safety

• If you buy a CD from your bank, you can be sure that money will be there when you need it. As long as the bank you choose is a member of the FDIC, the money you deposit is protected up to $250,000. That means that you get your money back, even if the bank fails or is taken over by the FDIC. As long as the total of your principal and the accrued interest is under the $250,000 limit, you get back every penny you are due.
  
  You have no such safety guarantee with a Roth IRA. The safety of your Roth IRA is determined by the safety of the underlying investments. You can buy low-yielding but ultra-safe investments such as government bonds and CDs, or you can choose riskier but potentially more rewarding ones such as stocks and mutual funds.
  
  

Deposit Limit

• If you wish to contribute to a Roth IRA, your contribution is capped at $5,000 per year, or $6,000 if you are at least 50 years old. These limits are as of 2011, and they are subject to change. When you invest in a CD, the amount you can contribute is determined by the bank. Some banks cap the amount investors can put into any one CD, while other banks allow customers to put in as much as they want. But even if your bank does not impose a limit, you should never exceed the FDIC-insured limit of $250,000.
  
  

Investment Choices

• When you buy a CD, your choices are somewhat limited. You can choose from a variety of different terms and interest rates, as well as many different banks. But no matter what the term or the interest rate, the underlying investment is much the same. You put a set amount of money into the CD, collect the interest along the way and wait for the CD to mature.
  
  When you open a Roth IRA, you can choose from a variety of different investments, including individual stocks, stock mutual funds, bonds and bond funds and international investments. You can even invest part of your IRA in a CD if you need safety as well as growth.