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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76398  
Subject: Re: Withdrawal Strategies...Again Date: 3/9/2014 3:28 PM
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inparadise asks,

I hate to be so obtuse on this, but shifting gears from accumulation mode to spending mode means I have much to learn. When you take capital gains, doesn't that go towards your income base? So in other words, if we had $40,000 in TIRA witdrawals and $80,000 in capital gains, would the basis for the tax on capital gains be the $40K or the $120K? Or is what you are saying that by selling $80K in stock, the capital gains may only be $30K when you net out the initial cost of the stock, so we still only get taxed on the $40K in TIRA income, because our total income would only be $70K.

</snip>


The way the IRS tax worksheet operates, they consider capital gains first.
So you'd have $70,700 of capital gains at 0% and $9,300 taxed at 15% for a total capital gains tax of $1,395.

Your $40,000 in traditional IRA withdrawals is taxed as ordinary income from $80,000/yr to $120,000/yr which put you in the 25% bracket ($72,500 to $146,400 for a married couple) so you'd pay $10,000 in tax on the $40,000 IRA withdrawal.

Overall the $120,000 in income would have $11,395 in tax (ignoring exemptions and deductions.)

intercst
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