Many people take comfort in putting money aside and watching the amount build up in their savings. When we save money, we’re doing our best to create a cushion to help against any financial obstacle that might befall us. That’s our first motivation. Our second motivation can be to leave something behind for the people we care about – spouses/partners, friends, family members, even charities and our alma maters. Many savers like to put their money into a certificate of deposit, or CD as they’re more typically referred to. If the person putting his money into the CD names another person or organization as a beneficiary, the beneficiary may be wondering if they need to pay taxes on the certificate of deposit when it comes into their possession. This is known as a payable on death CD.
Paying Taxes on Inherited CDs
Let’s say your grandfather has set aside some CDs for his grandchildren, and you are one of them. He passed away recently and according to the terms of his CD contract, you are now to receive the CD as its beneficiary. The CD is worth $100,000, and you could really use that money to get your own financial situation stabilized. You even want to put it into a new CD, this one for your young daughter’s college education.
Now, the answer to the question: “I’m a CD beneficiary, do I need to pay taxes on my CD?” – generally speaking, the estate of the person who bought the CD will pay off the taxes on it. You may have to pay off federal and state taxes on any interest it earned. The taxation of a beneficiary’s CD will vary from state to state.
In order to learn more about your tax responsibilities as the beneficiary of a CD, be sure to consult with a financial advisor. He or she can explain to you the tax issues revolving around your status as the beneficiary of a CD. Another important resource for advice would be a tax consultant. If you are the recipient of a CD, you will also want to know what to do when your CD comes to term. We’ve compiled an explanation of how to make the decision to renew for CD beneficiaries.
