Skip to main content
No. of Recommendations: 5
My guess is that they're calling a return of capital tax-free "income".

Wright tells his financial advisor he needs $117,000/yr to live on.

Advisor sells $77,000 worth of stock with a cost basis of $33,000, netting a capital gain of $44,000.

The $77,000, plus pension, IRA distribution and his part-time H&R Block job bring his income to $117,000/yr.

This is how I read it as well. They are considering anything they take out of their taxable savings as "income" which I find absurd. If I run down to the bank and pull $1000 out of my savings account, I do not have $1000 in income. I have money that was already mine and previously taxed that I just haven't spent yet.

The idea of the article was that it was better for these people to have put their money into taxable accounts, and so they count everything they take out of their taxable accounts to use for their living expenses as income, even though part of it is already from their savings and is the cost basis being returned, has already been taxed way back when they actually earned it, and will not be taxed again. But it's not income.

The capital gain, dividends, pension, and anything they'd take out of their tax-deferred IRAs would be income and would be taxed now, but that's also because their tax-deferred IRA money has never been treated as income and taxed yet.

The article didn't seem quite truthful to me because they're opting to call savings and/or cost basis, which is previously taxed income, as income now, and it just isn't.

At least that's how I read it.
Print the post  


The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
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.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! 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.