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Author: steelpotato Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121317  
Subject: Best thing to do Tax-wise after 401k Date: 5/29/2008 2:57 PM
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Hi Everybody,

I'm currently maxing out my 401k contribution as a Roth, and have some money left-over to invest. I'd like to know the best way/account to invest this money.

I know I could put it in a traditional IRA, but I'm hoping to retire before 60-whatever with some of this money, so I don't know that an IRA would be a good idea (unless the penalties would be less than the taxes)

Really, what I'm worried about is Capital Gains tax. If I take a bunch of money, and start investing it, I don't want to pay taxes on every transaction, do I? Is there some way I can put all the money in an account, and only pay taxes when I withdraw it? (Kind of like my own mutual fund). Then, I could make trades within the account without a problem.

Thanks
~sean
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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 100942 of 121317
Subject: Re: Best thing to do Tax-wise after 401k Date: 5/29/2008 3:43 PM
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If I take a bunch of money, and start investing it, I don't want to pay taxes on every transaction, do I? Is there some way I can put all the money in an account, and only pay taxes when I withdraw it? (Kind of like my own mutual fund). Then, I could make trades within the account without a problem.

No, and neither can a mutual fund, which is required to distribute most of its trading income to shareholders. The key to minimizing the tax bite on a regular taxable investment account is tax-efficient management of the account. You can do that yourself with long-term buy & hold investments, recognizing taxable income only when you sell, and then paying tax at an advantaged rate. There are also "tax efficient" mutual funds which limit their trades and, thus, their taxable distributions. If you're going to actively trade stocks, you want to do it in a retirement account.

The one thing the Fool pays me for is my help with the premium Rule Your Retirement product. I don't recall ever shilling for it before, but your situation calls for it. There are a lot of underlying issues to your seemingly simple question, for example, what type of investment mix you should have given your current status and plans. You can try out RYR for a free 30-day period. There's also a regular board on Retirement Investing which you might find helpful.

Phil

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Author: Rayvt Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 100943 of 121317
Subject: Re: Best thing to do Tax-wise after 401k Date: 5/29/2008 4:35 PM
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ant to pay taxes on every transaction, do I? Is there some way I can put all the money in an account, and only pay taxes when I withdraw it?

I always kinda wanted to have to pay $100,000 capital gains tax in some year. 'cause that would means I had a $500,000 gain.

Sounds like you should just invest in an index fund (SPY, VTI, etc.). Very low turnover so very low ongoing taxes. And when you withdraw money 20-30 years from now, it'll all be long-term capital gains.

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Author: steelpotato Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 100945 of 121317
Subject: Re: Best thing to do Tax-wise after 401k Date: 5/29/2008 5:32 PM
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Right, I get the idea then. There's nothing special to do - just make sure anything not tax-sheltered is long-term and pay attention to capital gains when you sell.

"The one thing the Fool pays me for is my help with the premium Rule Your Retirement product. I don't recall ever shilling for it before, but your situation calls for it. "

You're talking about the newsletter? I'd pay for personal advice, but I don't see how a newsletter would really help.

Thanks to both of you

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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 100950 of 121317
Subject: Re: Best thing to do Tax-wise after 401k Date: 5/29/2008 7:18 PM
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I always kinda wanted to have to pay $100,000 capital gains tax in some year. 'cause that would means I had a $500,000 gain.

$100K in capital gains tax equates to $666.666 in capital gains. You may have been sleeping since the last reduction in CG taxes (5 years ago).

Ira

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Author: TooTallT Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 100968 of 121317
Subject: Re: Best thing to do Tax-wise after 401k Date: 6/2/2008 6:44 PM
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$100K in capital gains tax equates to $666.666 in capital gains. You may have been sleeping since the last reduction in CG taxes (5 years ago).

This will likely change with the next administration.

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 100969 of 121317
Subject: Re: Best thing to do Tax-wise after 401k Date: 6/2/2008 7:33 PM
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I always kinda wanted to have to pay $100,000 capital gains tax in some year. 'cause that would means I had a $500,000 gain.

$100K in capital gains tax equates to $666.666 in capital gains. You may have been sleeping since the last reduction in CG taxes (5 years ago).

Ira


In this case, I believe you are both wrong. AMT is going to be an issue. It isn't possible to just calculate taxes based on the capital gain rates.

Debra

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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 100970 of 121317
Subject: Re: Best thing to do Tax-wise after 401k Date: 6/3/2008 1:32 AM
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I always kinda wanted to have to pay $100,000 capital gains tax in some year. 'cause that would means I had a $500,000 gain.

$100K in capital gains tax equates to $666.666 in capital gains. You may have been sleeping since the last reduction in CG taxes (5 years ago).

Ira


In this case, I believe you are both wrong. AMT is going to be an issue. It isn't possible to just calculate taxes based on the capital gain rates.


No. Except in the case where the cost basis is different under AMT rules, capital gains taxes are independent of AMT. Of course, the other income may be subject to AMT and be taxed at a higher rate than under the regular tax system, but the capital gains are always taxed at capital gains rates.

Ira

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