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Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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If a parent has a Certificate of Deposit with POD (pay on death)

Customer Question

If a parent has a Certificate of Deposit with POD (pay on death) for a child, does the child have to pay income tax of the amount of the CD at death of the parent?
Submitted: 7 years ago.
Category: Tax
Expert:  Merlo replied 7 years ago.

Hello JM,


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



Expert:  Merlo replied 7 years ago.

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.



Thank you jm



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Customer: replied 7 years ago.
When the CD matures and the child redeems it, does he still not have to pay income tax on the amount of the CD? It is a regular CD, not tax-deferred.
Expert:  Merlo replied 7 years ago.

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.