Dear Dr. Don,
I’ve had an IRA CD for the last 10 years. I’m now 63 and would like to convert it over to a regular CD so I can start taking the interest each month to supplement my income.

Will I be taxed on the interest I got the last year I had it, or on the whole amount of the CD? Do I have to pay taxes on the interest I received in last 10 years or just in the last year before I converted it over?

Joan Juggle

Dear Joan,
You’re going about this the wrong way. If the IRA CD was funded with pretax dollars — and most are — then every penny of it is subject to income taxes, including the principal and interest.

Fortunately, you will only owe taxes each time you take a distribution out of the account. However, converting the IRA CD to a regular CD would make the entire deposit subject to taxes immediately.

There are some easy ways for you to achieve your goal of taking distributions without moving the money out of an IRA account. The easiest is to ask your bank how you can take distributions from the account without closing the account. They may allow those distributions without requiring you to make any changes in the account.

The account is portable. You can move your funds to another IRA account and take distributions from that account. A money market mutual fund, for example, could give you interest income plus check-writing privileges on the balances.

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