Taxes on Roth IRA and traditional IRA receiving rollover

[tax102523]

A 30-year-old opens their first Roth IRA and contributes the maximum amount possible in a year. That person also opens their first traditional IRA and, to that account, rolls over funds from a previous 401K. If those funds are invested in CDs that will mature in the following tax year, how will these events affect their taxes in:

• the tax year in which they open the account?
• the tax year in which the CDs mature?

[Katherine S 63]

Great question!!

Interest earned on regular CDs is taxable, while IRA CDs grow tax-free. Contributions to a traditional IRA CD are tax deductible, but your withdrawals are taxed. Conversely, Roth IRA CDs get no upfront tax deduction, but withdrawals are tax-free in retirement

If the person keeps investing the IRA CD money in another IRA account, the principal and earnings will not be taxed until money is taken out.

Please give me a thumbs up if this was helpful.

Katie S.