Quote:
Originally Posted by Haggar
I'm a CPA and here's my answers:
First one easy question - on CD's outside of retirement accounts interest is taxable when paid (not as it is accrued). The taxpayer has to have constructive receipt (be able to get their hands on the money to be taxable).
As to whether accrued interest on a CD is added to market value in a retirement plan used as a basis for calculating. The answer would be appear to be yes after doing research though I cannot find any specific reference to it in the code or regs.
As indicates before a minor problem as this increase in market value due to accrued interest would be divided by the holder over their life expectancy.
A reminder - start doing the work for your 2023 Qualified Charitable Donations now - if you qualify. A wonderful way to reduce income for both income taxes and IRMMA.
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With regards to your first paragraph regarding CDs outside of an IRA, as I understand it, you can always withdraw accrued interest without penalty. And, you are taxed on accrued interest on an annual basis regardless of the term of the CD, or whether or not you actually withdrew the interest. I have owned a lot of CDs, and have always received a 1099-INT every year from the bank and paid income taxes on the accrued interest even when I didn't actually withdraw any interest.