If in an IRA, taxes are deferred, are you then taxed both capital gains and regular income taxes when you withdraw at age 60 or so? Or are you just taxed at your tax rate without the capital gains? It seems to me that if I have taxable money in stocks now, I will pay both capital gains (20% or 28%) and regular tax (about 30%) if I withdraw it? That's a big chunk!! Does the same thing occur later with an IRA when you withdraw it after 60 (59 1/2)? How does this all work?
You did not pay income tax on money you put into a traditional IRA. When you take the money out, you pay regular income tax. It does not matter whether the money you are withdrawing was generated from bond interest, dividends, capital gains, or even from a tax-free bond, it is taxable at your marginal rate, both state and federal. It is taxable like that no matter your age. If you are under 59 1/2 you pay an additional 10% penalty unless you make substantially equal withdrawals over a period of at least 5 years or until you are 59 1/2, whichever is longer. When you make withdrawals from an IRA, the custodian reports them to the IRS and you have to declare them on your tax return. Right, no free ride. Worse is if you die, your spouse is already dead, and your child is to inherit your IRA. It gets taxed very heavily. All of this makes the Roth attractive, if your are eligible for one. Best wishe, Chris
Who is eligible for a Roth IRA? Where can I find out about them?
<<Who is eligible for a Roth IRA? Where can I find out about them? >>There are a number of articles in the Taxes FAQ area. In fact, I have a seven part article on Roth IRAs. Check out the Taxes FAQ area at:http://www.fool.com/School/Taxes/TaxFaqIndex.htmHope you enjoy the information. After your reading, if you have any additional questions, please post 'em here.TMF TaxesRoy
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