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Author: JDOyster Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76384  
Subject: Re: FF and a tax (lc) fool Date: 8/2/1999 5:10 PM
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I think the first part of my question was cut off, but I'll follow up: If I can't utilize the FF with my 401K, and I definitely want to contribute more than the allowed 2K per year for IRAs into my FF online brokerage account, does this mean that prior to rebalancing my holdings, I should subtract 28% (or the equivalent for my tax bracket) and get the cash to pay for taxes before rotating into the next year's FF?


Almost.

The dividends are taxed as regular income, which is 28% (or whatever your marginal rate is).

The captial gain (the increase in price) is taxed at 20% (10% if you're in the 15% tax bracket). That assumes that you hold it for at least a year-plus-one-day (to make it a long-term capital gain).

So, if you are in the 28% bracket, you would want to subtract 28% of dividends plus 20% of the difference in stock prices to cover your taxes.

There is no guarantee that this would work perfectly, since a good year might slip you into a higher bracket.

JDOyster
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