Interest from US obligations such as US Treasury bills, notes and bonds issued by any agency or instrumentality of the United States is subject to federal income tax.  Treasury bills generally are short-term issues with maturities not exceeding one year issued at a discount.  Interest on a Treasury bill is the difference between the discounted price you originally paid and the face value you receive at maturity (or what you receive if you sell the bill before maturity).  No interest payments are received during the life of the bill. Treasury notes and bonds have longer maturities and generally pay interest semi-annually.  Refer to IRS Publication 550, Investment Income and Expenses, for further information.

In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.

Interest income is interest earned or paid to your account, for example from corporate bonds, municipal bonds and unit trusts, for the year.

Interest that you receive may either be taxable or non-taxable (tax-exempt) income.  Taxable interest includes interest received from bank accounts and tax-exempt money market income.  Taxable amounts received from money market funds are reported as dividends.

Taxable interest is also received on US Treasury obligations such as Treasury bills, Treasury notes and Treasury bonds, and certain preferred securities. 

Tax-exempt interest includes exempt-interest dividends from a mutual fund or other regulated investment company (RIC) and interest on state and local government issued municipal bonds. Tax-exempt interest may be subject to the Alternative Minimum Tax (AMT).

If you have a bond, note or other debt instrument issued at a discount, part of the original issue discount (OID) may have to be included in income each year as interest as it accrues over the term of the debt instrument.  Refer to IRS Publication 1212, Guide to Original Issue Discount Instruments.

For general information, refer to IRS Publication 550, Investment Income and Expenses, and consult your tax advisor for more information. 

In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.

In certain circumstances Federal income tax is required to be withheld on an IRA distribution at a rate of 10% if an election is not made at the time of your IRA distribution.  You may elect to have no tax or a different amount withheld.  If you roll over your employer-sponsored 401(k) retirement plan assets to an IBKR IRA account, the distribution may be subject to a mandatory withholding rate of 20%.  Any amount not rolled over is subject to tax, and if you are under 59½, an additional 10% early withdrawal penalty may apply.  You must roll the entire distribution over, including the amount withheld, within 60 days for the rollover to be tax-free. Income tax is not withheld on a direct rollover.

In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.

Form 5498,"IRA Contribution Information", is an information form used to report contributions and rollovers to Traditional IRAs, Roth IRAs, SEP IRAs, and SIMPLE IRAs. Form 5498 also reports the Fair Market Value (FMV) of your IRA account as of year-end.

Please check Box 11 on the form, if you take a required minimum distribution (RMD) for all years after you have attained age 72. If you attained 72 years or older in the previous tax year, Federal law requires that you begin taking minimum distributions from your Traditional, Rollover or SEP IRA account(s) in the following calendar year.

Plan custodians must distribute 5498s to participants and the IRS no later than May 31 of each calendar year. The timing of this form is due to the fact that contributions for the prior year may be made up to the filing date of your return (April 15). For SEP IRA's contributions may be made up to the filing date of the return plus extensions.

In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.