UnThreaded | Threaded | Whole Thread (34) | Ignore Thread Prev Thread | Prev | Next | Next Thread
Author: Pooksterish One star, 50 posts Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75838  
Subject: IRA capital gains convert to ordinary income!!! Date: 4/12/1998 12:51 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0

In my research to decide if I should go Roth or not, and convert or not, I uncovered a tid bit I didn't realize. I had already decided to go Roth when I found this out and now I'm more convinced.

In a regular IRA you are converting capital gains (which are taxed at a lower rate) into ordinary income (taxed at a higher rate). When you withdraw from the IRA, the income is taxed as ordinary income even if it comes from capital gains! What a rip off! I guess it's the damn governments way of taking back some of the benefits of IRA's. Maybe they did it because they knew most people wouldn't realize this dirty little secret!

So for those who don't qualify for a Roth or for another reason are better off not in a Roth, they would actually have to figure out if they are better off in a taxable investment rather than in an IRA! Which could be a very difficult calculation since it would involve forcasting the future!

I'm in what seems to be a rare position, which makes it fairly easy to know that a Roth would be best. My future tax rate is likely to be HIGHER than current. When I retire I may very well be in a HIGHER tax bracket since I'm in the 15% bracket now and, with the growth of my investments and the capital gains I'll have to pay later, my income may be pushed into the next bracket. So it makes sense to not take the deduction now and take the money out tax free then.

Did most Fools know this about the conversion of capital gains into ordinary income?

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (34) | Ignore Thread Prev Thread | Prev | Next | Next Thread


The Retire Early Home Page
Discussion on accelerating retirement day.
Pencils of Promise - Back to School Drive
"Pencils of Promise works with communities across the globe to build schools and create programs that provide education opportunities for children."
Managing Your Wealth
Our own TMFHockeypop from Rule Your Retirement fame on the TV show Managing Your Wealth.
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.
Post of the Day:
Macro Economics

Should You Be an Index Investor?
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! 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.