No. of Recommendations: 3

"Got it. It's obviously the same (ordinary income) provided the share is sold upon arrival in the taxable account from the IRA as part of a RMD with the new reset on cost basis. There's no way to get around the ordinary income charge."

If you sell the AMZN right away, there is no tax, or very little, since it hasn't appreciated.

I am speaking about future growth, although I worded the example poorly.

Every dollar coming out of the IRA is taxed as income. This includes the current value and all future growth.

The tax paid at distribution will always be there but the growth in the taxable account will be at long-term capital gains rates, as long as you hold the stock for the required time.

Distribute one share AMZN at $1,500 and retain one in the IRA.

Two years from now it is $3,000.

Sell the one share in the IRA and take the cash out. You pay income rate on $3,000.

In the taxable account, you pay capital gains on $1,500. The other $1,500, your basis at distribution time, was already taxed as income.

Hold the stock and stretch that out over 10 or 20 years and the difference becomes much larger.

Stock held in a taxable account has a higher future value because the tax rate on growth is lower than it is in a trad IRA.

Stock that pays qualified dividends will add a little drag because of incremental taxes. REIT's that pay ordinary income are a larger drag.

Stock that pays no dividends or very small dividends like CGNX, have no drag unless you are a trader, selling and buying.

All holdings and some statistics on my profile page
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