Skip to main content

Federal Tax Exempt Interest

This article describes how to enter tax exempt bonds in your Plan.

Nancy Gates avatar
Written by Nancy Gates
Updated over 2 weeks ago

The software computes and taxes interest annually for accounts with the Ordinary Income tax treatment. And, any interest will increase savings balance based upon the rate of return you enter. Interest income is not used to fund expenses.

If you want more granularity and to account for federal tax free interest income, we generally recommend one of the following methods.

We don't currently offer a "State Only" option, so this will be a limitation. These methods will exclude the interest at the federal and state levels.

METHOD 1

  1. Create an account with the Ordinary Income Tax treatment

  2. Set the rate of return to zero

  3. Add a Pension to represent the monthly interest

For bonds that are tax free at the federal level, add annual interest as a pension and

select "No" for taxes.

METHOD 2

When you use this method the Planner will increase the account balance based upon your rates of return, but neither the interest not withdrawals will be taxed on any level.

  1. Create an account with the Capital Gains Tax treatment

  2. Enter a Cost Basis that is higher than your Account Balance

  3. Set your rates of return


NOTE: Due to the lack of a specific feature for tax exempt assets, the Planner will not recognize the interest in the MAGI for IRMAA when using either of these methods.


​

Did this answer your question?