No. of Recommendations: 1
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%
Print the post  


The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.