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Are Your Brokerage IRA Cds Handled Like Stock Purchases??

paoli2
paoli2   |     |   2,227 posts since 2011

I just realized recently (after so many years with both of our brokerages) that when I receive their statements it does not show an amount for the total of the CDs we have in the IRA accounts but the amount that the CDs would be worth if sold on the secondary market for that statement date.  So many of the balances show a lesser amount than what we actually paid for the CDs.  It is almost like they are treating them like stocks which go up and down according to the market price. 

When I called them about this, I was told that is to give an indication of what the account would be worth if sold on a certain date.  They said the only way they would have to give me the actual amount we paid for the CDs over the years is  if we did an IRA transfer.  I have never had any of our bank IRA CDs handled this way so it must just be a brokerage "thing".  I was wondering if anyone on DA has IRA CDs with a brokerage and if their statements show the balances this way.  The brokerages we deal with are Fidelity and Vanguard.  Frankly, I don't like looking at the statements and seeing them with a "lost" listed.  How can CDs show a lost?  I am not concerned with the cost of selling them at any time so I would prefere a brokerage which doesn't handle IRA CDs this way.  If you know of any would you please provide the name or names.  Thank you very much for any information you can provide.



Answers
ChrisCD
ChrisCD   |     |   130 posts since 2010
Brokerage Firms I think have to provide the current price of an security and CDs purchased through a broker are treated as a security.  I logged into my account and it shows me the quantity I purchased (face amount), the current market price, and the market value based on the quantity * the market price. 

And my stock holdings are the basically the same way.  My statement has two lines for each CD.  The first one shows how much I bought and the current value compared with the original amount and value.

I'm surprised that the statement or on-line browse doesn't show the original value, which for CDs, is really what you care about.
paoli2
paoli2   |     |   2,227 posts since 2011
Chris:  I just got off the phone with one of our brokers and you have it correct.  He said since prices can change when or if we need to sell a CD, the SEC makes them do their statements so people can be aware of these changes.  I would prefer to just see a total value of all the CDs purchased and the amount of cash in the cash reserves for a "total" of everything.  So what I do is add the CDs up myself and add the cash reserves amount to them for a complete total whenever I get a statement or want to check the account.

 The original amounts paid for each CD is on each statement with the info for the bank but you have to total everything up yourself if you want to know how much you have actually paid for all CDs purchased for the period.  He said all brokerages must follow the same rules so I guess I will cancel my request to find out what others are doing.  Thanks for the reply.
hal
hal   |     |   8 posts since 2012
Paoli2.
Are your broker CDs being held in a IRA?  If yes, what value do you you base your RMD year end value on?  The "TRUE Value" or the reported value from the broker? 

Thanks.
paoli2
paoli2   |     |   2,227 posts since 2011
Hal:  I use whatever value they show for 12/31/14 (for example, the date of the year before I would be taking the RMD.  The brokerage usually puts up the correct needed date and the amount they are figuring it out of.  The value they use is considered to be the "true" value for the date used so I use this amount also.  When I have time, I think I will check out what they used for his last RMD and which value they used now that you have perked my couriosity.  What they used has always been accepted by the IRS since I have never been questioned on it.  They are all Rollover IRAs.

Hal:  I just spoke to the brokerage and it is the "Ending Value" of what the account would be worth for that date if he were to try to sell it.  I checked the 12/31/14 statement where they got their figure from and noticed it had about $1,300.00 deducted for a loss for that period.  If there is a gain, it is added in.  Thanks for bringing this to my attention so I will be sure to use the correct figures if I try to figure his RMD before they send us their statement.  It seems to be a constantly learning experience with these RMDs and using brokerages. BTW, I have already withdraw his RMDs for all of the brokerages for 2015.  Much appreciation.
hal
hal   |     |   8 posts since 2012
Paoli2.
Another question.
How are the semi-annual interest payments handled?  It's my understanding they don't compound, so therefore must go to another account (taxable?) or mailed to you?  And how does that affect the RMD required?

Thanks again.
paoli2
paoli2   |     |   2,227 posts since 2011
Hal:  When we opened the brokerage IRAs umpteen years ago they always included a seperate with Vanguard "Prime Money Market Fund" and with Fidelity the "Cash Reserves" which earns about 0.01%.  The CDs depending on which are selected pay interest usually monthly or semi-annually.  The interest goes into those accounts and accumulate until (in our case) they reach $5,000 to $10,000.00 and then I purchase a new higher paying CD with them.  I don't like too much funds sitting at that low rate for long.  Those accounts are tied into the core IRA so no taxes are paid on the interest unless it is withdraw which I never have over the years except when it is included in the amount I need for the RMDs.

I like to withdraw his RMD around February of each year to use to pay our regular taxes etc. (I am aware this is not approved by some but it is best for me).  I try to have one of the CDs closer to the amount we will need for the RMD mature and go into the Prime Money Market (Vanguard) or Fidelity Cash Reserves and withdraw it in February to pay most of the RMD.  The rest of the RMD I would use interest I let accrue in the other account and withdraw it.  The gov doesn't care where we withdraw the funds from as long as we withdraw everything needed for all the accounts for that year.  Since all the interest is left in the accounts until I withdraw it in about Feb, it has no affect on the RMD or problem.

The brokerages are really great because with one phone call, I have it set up for them to transfer the entire RMD amounts to a local bank account for our use for the year.    We, of course, must pay our taxes due on the entire amount which raises our income and the amount of Social Security taxes.  

Hope this helps.  Have a nice day.
Ricochet
Ricochet   |     |   230 posts since 2010
No skin in this conversation but if at the end of year could you use the 1300 $ "loss" to lower your taxed income? Or is it only if you sell.
paoli2
paoli2   |     |   2,227 posts since 2011
Ricochet:    No this isn't the way it works with any "losses" or "Gains" that's what confused me about why the SEC makes them do it this way.  The figures are mainly to show us what it would approximately cost us it we tried to sell at the particular time.    Whether or not we could take it off as a "loss" if we sold, I don't know since we have never tried to sell any of the CDs.  They just mature, the total amount of what we paid ex. $25,000.00 goes into the Money Market or Cash Reserves I wrote about earlier with any interest due and I quickly purchase another CD so I can keep it earning something besides the 0.01% in the Core account.

The IRAs are only affected by taxes when we withdraw our RMDs each year and the amounts never show the "paper" losses or gains.  The brokerages we use are very good about sending us the particular forms we need showing how much the accounts were worth on the end of the year before and they even figure out how much is due for their particular RMD.  I can do my own calculations according to his age factor for the year with an online calculator or just an adding machine.  I always want to make sure "they" got it right!  :)    Have a nice day.
Ricochet
Ricochet   |     |   230 posts since 2010
Thanks .
i knew that people could write off the penalty for redeeming CD  early,but I was confused about "loss" aspect seeing as how I generally consider CD as an Investment. Thought maybe I was missing out on a tax opportunity DUH.
paoli2
paoli2   |     |   2,227 posts since 2011
No "DUH" about it.  I respect anyone who tries to do the best he/she can taxwise or financially.  I am still slapping myself for not making certain other better choices in the past.  But I reached my goal and that is what is most important.  Can't win them all.