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Author: Garak Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 19257  
Subject: Rollover IRA Withdrawls Date: 5/18/2000 1:34 PM
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This is a really dumb question I know.

I have a Rollover IRA (from a company 401K plan). It is primarily invested in stocks. When I withdraw from this account, how do I determine the tax due for the portion withdrawn?

Since many stocks and funds have been sold over the years within the IRA, how can I determine a cost basis for the amount withdrawn?

Thank's for any assistance.
Garak
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Author: gurdison Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3980 of 19257
Subject: Re: Rollover IRA Withdrawls Date: 5/18/2000 3:14 PM
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<I have a Rollover IRA (from a company 401K plan). It is primarily invested in stocks. When I withdraw from this account, how do I determine the tax due for the portion withdrawn?

Since many stocks and funds have been sold over the years within the IRA, how can I determine a cost basis for the amount withdrawn?>

You don't deal with cost basis in an IRA. All distributions are taxes as ordinary income at your marginal rate. If you are less than 59.5 years old and have not met any of the special rules, you will be hit with a 10% penalty for early withdrawals. If you have more specific questions the tax strategies board can be very helpful.

BRG


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Author: drolyag Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3995 of 19257
Subject: Re: Rollover IRA Withdrawls Date: 5/19/2000 9:01 AM
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I thought you could receive capital gains at the capital gains rate?

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3997 of 19257
Subject: Re: Rollover IRA Withdrawls Date: 5/19/2000 10:47 AM
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Drolyag writes:

<<I thought you could receive capital gains at the capital gains rate?>>

Capital gains rates do not apply within an IRA. Any money withdrawn from a traditional IRA that has never before been taxed will be taxed at ordinary rates in effect in the year of withdrawal. That includes both your pre-tax contributions and earnings regardless of the source of the latter.

Regards..Pixy

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Author: Garak Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4002 of 19257
Subject: Re: Rollover IRA Withdrawls Date: 5/20/2000 11:25 AM
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If, for example, the IRA is worth $100,000 and I withdraw $20,000 in one tax year, how do I know what profit/loss I made on that $20,000? What is the cost basis for that $20,000 portion of the $100,000 in the IRA that will be reported as ordinary income?

Garak

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4003 of 19257
Subject: Re: Rollover IRA Withdrawls Date: 5/20/2000 2:30 PM
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Garak asks:

<<If, for example, the IRA is worth $100,000 and I withdraw $20,000 in one tax year, how do I know what profit/loss I made on that $20,000? What is the cost basis for that $20,000 portion of the $100,000 in the IRA that will be reported as ordinary income? >>

By definition, all of the money in a rollover IRA has NEVER been taxed. Therefore, unless you have another IRA or two to which you made after-tax contributions, anything you take from that rollover IRA will be taxed in full at ordinary income tax rates. If you take $20K, your basis is considered as zero and you must declare the entire $20K as income for income tax purposes.

Regards..Pixy

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Author: gurdison Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4017 of 19257
Subject: Re: Rollover IRA Withdrawls Date: 5/22/2000 2:14 PM
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<I thought you could receive capital gains at the capital gains rate? >


Uncle Sam let you put your funds into the IRA tax free. When you take it out, you pay him first at whatever your current rate is. Plus any additional penalties. Plus your state will also have their hand out. That is why you should have a clear plan on when and how to take any withdrawals, especially before the age of 59.5 years. The idea is that when you are retired you will be in a lower tax bracket so that you will pay less taxes. Also, the funds were allowed to compound tax free for many years, increasing your total return.

For those who want to have tax free withdrawals, they need to set up a Roth IRA. All of those funds going in are AFTER TAX dollars. You do not save anything now. Also there are income limitations on qualifying for the ROTH. You had the option of converting your regular IRA to a Roth. However, that generates a very large tax bill. There is no "one size fits all" on how to handle your IRA. You should never make any moves without FULLY understanding all of the consequences of what you are doing.


BRG

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