Are there taxes involved in putting money into a Money Market Account? Even when April 15 comes around?

Question

What about other cash investing options like CD's or an IRA? What is the difference between a MMA and a Money Market mutual fund?

Answer 1

A money market is an investment that invest in debt securities. Generally, money markets have maturity of less than 1 year. They have lower rate of return than equity securities because there is constant trading. Money markets are very safe securities because it invests in debt securities.

The difference between money market and money market mutual fund is that money market are sold directly and you manage it. Money market mutual fund is where there is a portfolio manager that pulls together thousands of investors money and manages the money for them.

Will you pay taxes on money markets? Only if there is gains (which is very low) and dividends and/or interests (which pays very often, almost every month).

If your money market or a CD was inside an IRA, your investments grow tax-deferred, meaning you don't pay any taxes in any given year. Depending on which type of IRA you get, you may pay taxes on withdrawals (which is called a Traditional IRA) or you may pay no taxes at all on withdrawals (which is called a Roth IRA). IRAs has an age 59 1/2 rule in which you make withdrawals before that age, you will pay a 10% penalty on earnings and gains.

Answer 2

Only an IRA has tax advantages. A money market account is a better paying savings account, often requiring a much larger deposit. Same thing with CD's. The only tax involved in the latter two is that you have to claim interest earned on your tax return each year.

Answer 3

Anytime you make $$$ , whether by working or investing . . . there will be taxes.
$$$$ you put in a MMA or CD today will result in % payments to you in 2007 ,
Then you will pay taxes on that amount next year.
The tax year runs from Jan to Dec. Your April 15 tax bill will be for $$$$ gotten in 2006 only.
The exception is IRAs , because retirement account earnings are tax deferred until you withdraw them.