The child would not have to pay any tax on the face value of the CD itself -- in other words, no tax is due on the amount that the parent originally contributed to open the CD.
Tax would only be due on the interest earned by the CD and not the entire CD value.
If this was helpful please press the Accept button. Positive feedback is also appreciated.
Thank you jm
Hello again JM,
One more thing I would like to mention. I am assuming that this CD is just a regular CD and not part of an IRA account or other tax deferred retirement account.
If it is part of a tax deferred retirement account such as an IRA, then tax would be due on the entire amount of the CD. Otherwise you would owe tax on the interest only.
Hello again jm,
That is correct. If this CD is not part of a tax deferred account, then the money that was originally used to open that CD was already tax paid money, and will not be taxed again when the CD is cashed in.
The only thing that has not been tax paid is any interest that the CD earned up until maturity, and that is the only thing that interest will be due on.
Thank you jm and let me know if you have more questions.