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Author: Yumoroz Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75378  
Subject: Re: What are your thoughts? Date: 8/14/2007 2:31 PM
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In a taxable account, you'd have paid 10% tax (10% x (70K - 4K) = $6,600) on your long-term capital gains. However, Traditional IRA distributions get taxed at your marginal tax rate. If you're in the 25% bracket, that's (25% x 70,000 = $17,500). Even factoring out the deduction you got up front, you're paying almost $10,000 more in taxes.


Raven, good points, but couple of questions:

1) why you use 10% for capital gains? isn't it now 15% (and was 20% recently)?

2) Traditional IRA distributions get taxed at your marginal tax rate
well, while this is true, some people usually note (and I agree with them), that, depending on how much income you have that year from different sources, your effective tax rate can much smaller.
Imagine, this is your only taxable income, then, even you are in 25% bracket, you will pay much less tax on 70,000 than 25% (don't know right now how much, but first come deduction/exemptions, then lower tax brackets, and only at the end - your marginal rate), I don't think the effective tax will be more than 15%
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