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Birds of a Feather / Young Professional Fools


Subject:  Re: How do you invest? Date:  2/27/2008  8:25 PM
Author:  Spaminetti Number:  33 of 49

Oh, and a question. How are interest payments on CDs and Savings accounts taxed? Is it considered capital gains, or is it in a seperate category? I tried looking around google but wasn't able to find an answer yet

Companies selling you CDs (or savings accounts) will send you a 1099-INT for taxes. It's not capital gains; it's just interest. So you get taxed at whatever rate the rest of your income is taxed. If you do multiple year CDs, you typically pay taxes on the interest all at the end when you actually get the money. Oh yeah, and they should be FDIC insured, so you don't lose your money (up to 250k) if the bank fails.

My suggested gameplan is:
(1) Spend less than you earn each month. (I tend to put it all in excel. I was a math major; I'm just like that.)
(2) Set up emergency fund in a high interest, accessible account. Mine's ~3xmonth pay. (some say 6x. It's based on security of your job.)
(3) Max yearly contributions to an IRA.
(4) Invest as much additional money as possible in taxable accounts.

Oh, a tax thing about stocks in general. You need to keep the statements when you buy them, because when you eventually sell you need to be able to prove cost basis.

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