Those in the know re: taxes, capital gains & IRAs

[Cairycat]

can you help me debunk the points in this local letter to the editor?

It has been floated that President Obama is looking at doubling the Capitol Gains tax to 30 percent. If this happens, everyone who has a 401(k) or IRA/Roth retirement account will see their value drop drastically as every investor rushes to sell their investments at the current rate of 15 percent. This loss to investment/retirement income will be on top of 401(k) account values that have already dropped more than 40 percent in the last 12 months.

The money that people put into their Roth or their investments of stock or real estate is income that already has been taxed once. So, if you take the responsibility to invest and save for your future, you are taxed again by your government for being responsible. We should only be taxed once, when we receive our paycheck; not when we invest and not when we die.

We have government services that we must pay for with taxes, and most are happy to pay for the shared services. But is there a fairer way to do this? Should we go to a flat tax that is paid on all income, with no deductions? Should we move to a consumption tax on all purchases? Whatever we do, we should move to a better and fairer system then the current 60,000-page tax bill.

Have I not been paying attention, or is this guy misinterpreting something? Don't IRAs get taxed at your income rate (usually lower after retirement)?

Thanks for any and all help.

[RUMMYisFROSTED]

1. Link?/Name of paper?/City?

[Cairycat]

3. oops, sorry.

Cedar Falls, Iowa. http://wcfcourier.com/articles/2009/04/24/opinions/letters_to_editor/11218069.txt

[brashs]

9. From what I have seen

Obama has not mentioned this proposal since last summer. IMO not likely in our situation now.

[NC_Nurse]

2. You don't pay taxes when you withdraw money from a Roth IRA. Period.

It's after tax money and that's the advantage of a Roth vs. a regular IRA. As long as you wait until you are retired, you can take all of it out tax free.

That much I know.

[RB TexLa]

5. That and you can withdraw contributions tax free at any time. And there are no required

distributions at 59 and a 1/2.

[RB TexLa]

4. What they are saying is if there is a large sell off in the market the value of

your holdings in people 401(k)plans would be hurt.

And yes a doubling of the capital gains tax would cause a number of people to sell stocks. But, I haven't seen where the president has suggested doing this.

[safeinOhio]

8. Doesn't make any sense to me

Lets say you make enough to be in the 15% bracket. Your taxes are going to double, so you are going to stop working or making money? I didn't see any plan to double capital gains, perhaps move it back to 28%. So, where are you going to put the money from stocks? If you are in the top bracket, you'll still pay less than you do on non-capital gains. There is no where else to put it, other than capital investments that can offer any better return at less tax.

[subterranean]

6. The second paragraph is wrong.

The money you use to buy stocks or real estate is not taxed again when you sell. Only the profits you make are subject to the capital gains tax, because that money was not taxed before. Capital gains in a Roth IRA are not taxed at all after age 59 1/2. So there is no double taxation.

[RB TexLa]

10. Edit: Sorry, you were correct on everything

So just agreeing with you. I misread your statement about Roth IRA gains. :)

[dixiegrrrrl]

7. Currently there are NO capital gains on stocks/bonds sold.

Way back in early 2000 something, Congress passed a law that said ZERO Capital gains for tax years
08, 09, and 2010. They musta seen the market sell off coming.
Normally, If you sold/sell your 401-K type of IRA, you owed income tax plus capital gains.
For tax year 08/09/10, as explained above, you owed no capital gains ( no short or long term gains ) but you do owe regular income tax for cashing in the IRA.
The thinking was, as previously stated, that the tax rate would be low come retirement.
After 2010, the capital gains rates are supposed to be re-set. I dunno to what..that will be a long battle.

If you have a ROTH IRA, there is no tax on anything.

In 08 I cashed out my Roth and my 401-k, and only paid 15% income tax on the 401-K, because I had no other taxable income. All my 1099 statements indicated NO capital gains taxes.
MY CPA confirmed that when he did the taxes.


NOTE: I was otherwise eligible to cash out my retirement funds.
If you cash them out before you are eligible, there are tax penalties.