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Problem I:
I was told that we only pay tax on earned income. true?


I was told that I look like Robert Redford. That person was delusional too. You pay tax on all income that is not excluded from taxation. That includes lots of things that are not earned income.

So why do I have to pay tax on my retirement and Social Security. I pay my tax when I saved for my retirement and I pay my tax when I pay into my Social Security. And now I being tax for getting my retirement money and my social security. Am I being taxed double after I work long and hard for it. I'm totally confused about paying taxes on un-earned income.

You're not being taxed twice. For any retirement savings or investments that were deductible, e.g. 401(k), you've never paid tax on those earnings. Thus, when you take withdrawals they are fully taxable. For things that you paid with after-tax money, e.g. pension contributions, you recover your contributions tax-free when you're receiving your pension.

Social Security is a beast unto itself. Although you may pay tax on a portion of your SS benefit, it's not calculated the same way as a pension. If it were, you'd be paying more tax.

Problem II:
When I wanted to buy into Roth, I was told I do not qualify because I don't have earned income. I must pay tax on my retirement and social security eventhough they are not considered earned income by the IRS standards to participate in to Roth IRA.
I'm totally confused.


We should have cleared up the confusion about taxing unearned income under Problem I. IRAs, Roth and otherwise, are vehicles intended for retirement savings while you're working. Thus they don't allow contributions when you're no longer working.

Problem III:
When I was working and pay into 401K, I could also have an IRA outside my work.
That is a double tax deduction. That is great. I left my 401 K where it is, but since I'm retired, I'm unable to add to my IRA outside my work or buy into Roth. My mind is totally scattered. There must be a loophole, which I missed. helppppp. Anybody try to explain to me this IRA and Roth IRA mess!


Well, I think we've covered all this by now. For more information about IRAs and how they work, see All About IRAs: http://www.fool.com/money/allaboutiras/allaboutiras.htm

TMF ExRO
Phil Marti
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