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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: of 121219  
Subject: Re: Why getting rid of dividend tax is a Bad Ide Date: 1/6/2003 7:01 PM
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...Dividends are so low nowadays that the tax exemption isn't going to
dramatically help many individuals, particularly since so many people
own stock in tax-deferred devices like IRA's and 401-K's (more on this
later...)


I disagree. In 2000, (the most recent year for which data are published) there was $142billion of dividend income reported on 34 million individual income tax returns. That averages out to $4000/return or a probable savings of more than $1000 for someone in the 27% tax bracket. If you consider all returns, there were 129 million returns or about $1100 of dividend income per return. This is not a small number.

...Currently, what you withdraw from a IRA/401K is taxed as ordinary
income, unless it is from a Roth, in which case it is tax-exempt. What
about dividends from a stock in a 401K? Is this going to be taxed as
ordinary income as well? In other words, it may now be advantageous to
own dividend-yielding stocks _outside_ of an IRA/401K if dividends
aren't taxed. ...


So what? Tax laws change and investment strategies change to keep pace with the changes. It's a recurrent theme. Now IRAs will be used for shorter term investments. It's possible that some people may discover that they will do better keeping their retirement assets out of tax-sheltered vehicles.

Ira
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