The reality is, this has been going on to an extent since long long ago. Example you have a taxable mutual fund account. It does well year after year, meaning it is making you money and thus growing, making you more and more money as it grows. After ten or twenty years taxes begin to be a burden.
You do not remove money from the fund ever, but if your account grows by 30,000 thousand dollars, you owe tax on it at the end of the year on top of all your other taxes. The tax is called capital gains meaning your rate comes under capital gains not off your paycheck rate. Regardless it is still a tax, and remember above you are not ever removing money from the fund.
You may consider it your retirement vehicle even thought that should be in an IRA, for the tax advantage you chose to have a taxable account and it continues to do well. You owe more and more in tax. Money your account has received that can hit the skids tomorrow. Money that is NOT in your pocket, only a figure in your account on the last day of December every year. Money that due to the ups and downs of the market can be gone the next day, but by April, the government wants it’s share of your fund in taxes, regardless of the worth in April.
You are paying taxes on money that you do NOT hold in your hand. Period. Anyone with a taxable mutual fund account has been dealing with this issue for years. Adding thirty forty or fifty thousand dollars or more in capital gains taxes to your limited income, that the government wants in CASH, is a burden on anyone and especially on those trying to save for the time you can no longer work.
Remember the idea of investing for your future, is not taking money out until you are old and unable to work. It truly is for a rainy day. The government doesn’t see it that way and they want CASH for your privilege to earn money they think they are owed for your good fortune yearly, rather than at the point you begin to receive the money not on paper in your account, but actual cash in hand.
By this time you will be well aware of the tax advantage of an IRA, but you may not be aware of all the rules regarding those accounts until after 70 and a half when the government in it’s lack of wisdom demands that you then remove a portion of the fund whether you need it, want to or not. You are mandated to remove it, stop it from further growth etc. always and ever in a relentless effort to relieve you of cash for their ever luvin benefit, not yours. They aren’t demanding you remove all of it, just a portion each year based on a formula on your remaining years as calculated by government actuaries.
The proposal Yellen and the Democrats are talking about is much much much broader than what I have explained here, and would pretty much cover any wealth you try to gain. Including your house. Speaking of being able to survive in your old age without the means of survival. We who attempt to save will be assaulted by taxes beyond belief, even as those owning taxable investment accounts with mutual funds have been assaulted every year if our accounts have grown that year. The years they don’t grow you are not getting a refund, but your surely will be taxed when they do grow.
Your government, always thinking of ways to extract what you have never seen in your hand but they see a portion as owed to them, for use as they see it. As some tv progressive used to say, “What’s not to love?”
That’s fine and dandy where you can just sell some shares from your account if you need cash to pay the tax.
But try that as a farmer already scraping by in debt, trying not to lose his or her land.
>>Regardless it is still a tax, and remember above you are not ever removing money from the fund.
Same is true of a savings account, at least back when they actually paid interest - wether you take it or not, you earned it - if you want tax-free growth use a retirement account.
Mutual funds incur capital gains because they are constantly buying and selling (and paying dividends) which are all taxable events, just because you didn’t spend the money, doesn’t mean you didn’t earn it.
Get a new accountant...that is wrong, you never pay taxes until you actually sell the asset...
Ummm, no. That's not how it works in a taxable mutual fund. You're not taxed on the growth, but on the proceeds (capital gains) that were generated during the fund year by the selling of stocks internal to the fund. You have the option of taking the proceeds in a payout or being reinvested into the fund. That's different than holding an asset that appreciates and doesn't generate proceeds that can be taken.