No. of Recommendations: 3
From the context of the thread, I thought we were discussing money that is withdrawn and didn't need to be spent.

Yes, but you were also talking about dividends. You can't defer taxes on dividends or interest that is paid outside of a tax advantaged account. I get that some dividends (definitely not all - most REITs, some preferreds, etc.) are qualified, so it's a lower rate. But even then, and especially for non-qualified dividends and interest, you are definitely missing out on the deferral that would have occurred had those dividends stayed in the tax advantaged account another 5 or 10 years.

Hold the investment for at least a year and a day after the withdrawal, and it becomes a long term holding, with lower capital gains tax rates than ordinary income tax rates. Hold it longer, and the tax is deferred even longer.

It's not always your choice to hold it at least a year and a day after it's been distributed. I've learned that the hard way by having several stocks called and/or bought out short of holding a year. And even if it is your choice, sometimes holding a specific stock until it's a long term holding would probably just result in a loss, because something has changed since you purchased it, or even since it was distributed from your tax advantaged account, so you are better off selling to protect a short term gain, rather than suffer a long term loss.

Unlike the Traditional IRA with its mandatory distributions, I'm not aware of any general obligation to sell an after tax position and take a gain in it just for the sake of triggering a taxable event.

Leveraged buyouts, mergers/acquisitions, and calls can all trigger a taxable event. And with M&A activity on the uptrend, it's probably going to be happening more than it used to. https://www2.deloitte.com/us/en/pages/mergers-and-acquisitio...

I'm a bit confused on this one. I thought that if you have taxes withheld from a distribution, it's considered timely no matter when in the year you take the withdrawal and have the taxes withheld. If what you're really saying is that if you wait until the end of the year, you will have a better picture of your total income and tax burden than if you take the withdrawal early in the year and thus can better target the amount of your withholding, I agree with you.

Yes, the point about withholding being considered timely no matter when during the year it's done is precisely what you can take advantage of. Combined with the fact that you should pretty much know at least one of your safe harbor amounts to avoid underpayment penalties as soon as you file your taxes for the prior year (100% or 110% of your prior year's tax liability, depending on your income), you can keep the money for the current year's taxes in your hands longer, rather than sending it to the government, without incurring penalties.

Even if you pay no other Federal income taxes during the year (no estimated tax payments and no other withholdings from paychecks, other tax advantaged account withdrawals, pensions, SS, etc.) and then make an IRA or 401(k) withdrawal the last week of the year and have at least your safe harbor tax amount withheld from the withdrawal, the IRS will count it as if it was paid throughout the year. You will avoid the penalties for underpayment - while you had control of the money, and were getting investment returns on it, for 51 weeks out of the year.

AJ
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