bank ira-cds accrued interest
I have sent in several postings the past few months and I still have not received a satisfactory answer. This involves the bank showing the accrued interest as part of the FMV and reporting this to the IRS. I had one response saying that the banks have to show the accrued interest on the year end statement and show this as part of the FMV. I find that nowhere in the rules and regulations does it say that the bank has to do this.
Obviously I am still trying to find someone out there that has come across this problem and hopefully join me and others in seeing that this is not correct. Of course, this results in my paying taxes twice on that accrued interest as that interest is again shown the following year.
You have to be a person that looks at the whole picture and looks beyond the simple things.
Permalink Submitted by Al Fry on Thu, 2008-10-09 02:20
It is difficult to solve a problem that does not exist.
Permalink Submitted by Janine Janine on Thu, 2008-10-09 20:56
The accrued interest at year end then becomes part of the principal in the subsequent year. If the money is in a bank IRA CD, you have [b]not[/b] paid taxes on the interest, unless, of course, you withdraw money; then you would have to pay taxes on this tax-deferred money. At least, that is how I see it!
Permalink Submitted by charles lore on Sat, 2008-10-11 01:00
accrued interst is part of the FDIC coverage. This is why banks show it.
Permalink Submitted by Alan Spross on Sat, 2008-10-11 01:49
If a CD with a term over 1 year is in a taxable account, the interest earned through 12/31 is taxable on a 1099 INT. Quite likely, banks are subject to the same rules for IRA CDs over 1 year, except that the interest is not currently taxable, but is instead included in the fair market value on Form 5498. That would be consistent as far as accounting for accrued value in the account.
The account value for the IRA on the following 12/31 would then be based on:
1) If CD did not mature, prior year 5498 figure plus new year’s accrued interest less RMD or other distribution taken
2) If CD did mature, the posted interest as of maturity less any distributions taken. The posted interest as of maturity would include the accrued interest shown for the prior year end.
The net effect is the same as if the IRA investment was in a bond rather than a CD, since bonds pay periodic interest.
Permalink Submitted by Jose Morales on Mon, 2008-10-13 08:26
if this person knows that everyone who has answered this question is wrong and he has the right answer already then what is the need to ask the question, repeatedly?
Permalink Submitted by louis malo on Thu, 2008-11-13 17:44
[quote=”[email protected]“]The accrued interest at year end then becomes part of the principal in the subsequent year. If the money is in a bank IRA CD, you have [b]not[/b] paid taxes on the interest, unless, of course, you withdraw money; then you would have to pay taxes on this tax-deferred money. At least, that is how I see it![/quote] Did you receive my last posting?
I’m still looking for second opinions. Like I said you were the closest one to the problem. I’m still hoping that someone has come across this problem and ready to give me some info.
It is as you say I have to pay taxes on the amount withdrawn through my RMD. That is fine and expect to pay taxes on that FMV at some time but not again when the yearly interest is posted.
On 12-31 they show 9000 as accrued interest which they add to my MFV and report to the IRS. Then in March when the yearly interest is posted they show 12,000 which is the total interest,but includes the 9000 already included on the previous 12-31. This causes me to pay tax twice on that amount.
Obviously this is a cover-up.No one wants to assume the responsibility.
At present I’m waiting for the OCC to act as well as the PA dept. of banking. The PA Dept of Banking has verified that I am being taxed twice but so far has not forced the bank to make corrections.
The OCC is being paid by the banks and according to the old adage…you don’t bite the hand that feeds you. They also refuse to do their job.
So, I just keep getting the run around but, I intend to keep on trying. My latest effort will be with the newspaper.
Appreciate any help that you can give me.
Thanks
Permalink Submitted by Al Fry on Thu, 2008-11-13 22:21
You only pay taxes on what you take out.
Permalink Submitted by Janine Janine on Thu, 2008-11-13 22:28
You have misunderstood my response. As I stated, you have [b]NOT[/b] paid taxes on accrued interest in a Bank CD IRA! Yes, the interest increases the FMV just as appreciation in stocks or mutual funds increases their value, but you do [b]not[/b] pay taxes while they remain in the IRA.
I don’t think anyone, not even Alan, can clarify your obsession further.
Permalink Submitted by Alan Spross on Fri, 2008-11-14 05:01
One more try.
I agree that they add the accrued interest to your 12/31 FMV. Your RMD is based on the 12/31 FMV. When the figure goes up another 3,000 in March, that affects NOTHING since a March accrued interest figure does not change your RMD.
When the interest payment date, which could be at maturity or periodic date is made to your IRA it reduces the accrued interest dollar for dollar. There is no tax due unless you take money out of the IRA. If you have a CD in your IRA that earns 4%, your value at the end of each year would grow 4% less what you took out for your RMD. If your RMD was also 4%, the value of the IRA would stay about the same, and your RMD would only increase as a result of a higher % due to your age being a year older each year.
Another item to note. If you have a CD that pays out only at maturity, and is a one year CD that matures on Dec 27th, your year end balance will be higher than if that CD did not mature until January because the 12/31 balance would not include ANY accrued interest. Once you have a CD or bond for which accrued interest is posted, the result is that the 12/31 figure will include the total equity to date. As a result of this your RMD may be based on 104,000 instead of 100,000. Your RMD, whatever it is will be 4% higher than if no interest were posted on a January maturity. Each year your RMD is higher than otherwise reduces the account balance by the difference in the following year. You draw down the account faster, pay slightly higher taxes in the early years and lower taxes in the later years because the balance decreases faster.
But there is NO double tax, just a minor difference in the rate at which the account is drawn down by RMDs. If this bothers you, try to get CDs that do not post accrued interest, just interest actually paid at maturity. I suspect the term of those CDs would have to be one year or less, since CDs over that length MUST post accrued interest, at least they do in taxable accounts. There may also be a different treatment for a broker sold CD than a bank CD.