Q: My grandmother retired 17 years ago at the age of 62. At that time, she took her profit-sharing account and opened a certificate of deposit (CD) in an IRA account. The initial deposit was $50,000.

At age 70, when the required minimal withdrawals began, the CD balance was approximately $70,000. After 9 years of withdrawals, the balance is down to $63,000. The interest being earned on the CD is not keeping up with the withdrawals, and she obviously has to do something new.

Can she roll the CD over into a Roth IRA, or is there another option? What penalties will she face by closing the CD?

A: I don’t know what kind of CD your grandmother has. If she has a 2-year CD, she can simply close out the CD at the end of the 2 years and make another investment. If she is in the middle of her CD, then there may be a small penalty. She should look at the information she received when she bought the CD, or call the bank or financial institution that is holding it for additional information.

As for another investment, CDs are just about the safest thing around. That’s probably why she chose it. One way to make her money last longer would be to lower the amount she withdraws, but not below the required minimum withdrawal from an IRA. If you withdraw less than the minimum required, your mother will have to pay a penalty. Although at the current rate she is withdrawing cash, it would appear that she could continue to make withdrawals for some time to come.

If reducing her withdrawals is not an option, your grandmother is in a real bind because almost any other investment is going to carry a bigger risk that she’ll lose everything. Investing everything she has in the stock market at the age of 79 might mean she’ll grow her cash faster over 20 years, but she may not live long enough to ride out the risks.

Transferring your grandmotherâ€ââ€Â¢s funds from her current IRA account to a Roth IRA will not change the choices as to where your mother should invest her money. But the change to a Roth IRA may cause her funds to be taxed at a higher amount than what she otherwise pays on a year to year basis. A Roth IRA is probably not a good choice for your grandmother.

Here’s another option: If your grandmother owns her own home, without a mortgage, she should consider getting a reverse mortgage. A reverse mortgage allows a house rich, cash poor senior to tap into the equity in his or her home and use it to live on.

The senior can receive approximately half the value of the property, either in a lump sum or in monthly disbursements. The best part about a home equity loan is that nothing needs to be repaid until the senior sells the home — presumably after he or she dies. The loan is repaid out of the sales proceeds of the home.

The one thing your grandmother should understand is that a reverse mortgage taps the equity of the property. If she is planning to leave the house to her heirs, a reverse mortgage will eat up a good part of the value of the home. There will still be something left, but not as much as she might imagine.

Still, I’d rather see my grandmother live out her life enjoying what she has, wouldn’t you?

July 23, 2004.