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Taxes on Money Market IRA

By Terry Savage on June 13, 2021 | Financial Planning / Retirement

Dear Terry, this is actually part 2 of a previous question about a Money Market account. How do you actually pay your taxes? For instance; a CD IRA is converted to a MM IRA ; I assume, I think that you are given a MM checkbook with a balance and you can write checks of various amounts. When and how are the taxes paid? At the end of the year? Are they paid out during the conversion? Still can’t seem to find a straight answer on line. There was a time that you could make a simple call to your bank and get a simple answer, but with all the changes lately it’s been difficult to do. The banks I bank with have all downsized and require appointments for basic questions and transactions. Thank you for your guidance and timely responses.

Terry Says

The big question, which you haven’t stated here, is whether you are WITHDRAWING from your IRA and putting the money into a regular money market account? Are you doing that? If so, then the entire withdrawal is considered taxable income in the year the money is moved, and you will pay ordinary income taxes on it.

BUT if you are just changing to a different investment INSIDE your IRA — that is moving from a CD to a MM account — then there are no taxes due, as long as the MM account is inside the IRA. Then if you use the MM checks to make a WITHDRAWAL, only that amount will be taxed as ordinary income in the year of the withdrawal.

Make sure you understand what you are doing here!!

money

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