Posted on 12/07/2020 8:52:48 AM PST by SteveH
in a rollover ira, i purchase some spy in june 2020 and occasionally a bit more, a bit later. i have had rollover ira for a long time, not done anything with it other than watch it gradually grow over time, until now. i am retirement age (over 60yo).
it used to be the fidelity version of spy for many years.
i want to sell $210k of spy now (dec 2020).
spy went up 17.67% in about 5 months.
i have a long term cg rate of 15%, short term cg rate of 37%.
will i only get zinged at 37% for the 17.67%?
(in retrospect, changing from one version of spy to another will, if i sell now, cost me at least an additional 22% on the gains for the time, yikes, but i wanted the flexibility to bail out during normal trading hours)
Not if you’re talking about an IRA
True if the rollover contains all pre-tax (401K) or deductible contributions. Not true as a blanket statement for all traditional IRAs. If you have a basis in a traditional IRA (contributions that you didn't get a deduction for) the basis will proportionally reduce the amount of dollars taxed on withdrawal.
If you rolled after tax dollars into an IRA with pre tax dollars too.... you screwed up. Why would you?
> If it is inside an IRA, there is no capital gain. All taxes are deferred for qualified funds (IRAs, SEPs, 401(k)s, etc). You are taxed when distributed at your ordinary rate.
hmmm, i think you are right. i vaguely recall that my broker was squirrely on it with me when i asked about it several years ago.
well then this might be very good news since i don’t have to worry about a draconian 37% tax just for switching fund indstrument forms. thanks!
(i do eventually want to withdraw enough to cover taxes on what i withdraw, which i have learned from moderately painful experience in the past to be concerned about up front, or else enter a series of rollercoaster waves of compensatory withdrawals for yearly waves of resultant taxes lol).
> If you wait, the Biden Administration will relive you of all that worry............
c’mon man, i’m converting everything to krugerrands, putting it all in the bronco gas tank, and hitting the i-5 to tijuana ... with a wig... lol
My Summary:
You can cash out of the S&P Spyder fund and just leave it in that IRA Account, or roll to another trustee. Then no tax. But if you take possession of the money without a quick roll to a new account, you get taxed. So, thinking there will be a Biden crash, you park the money in a money market fund, or a different investment type.
As to Biden Taxes: If he gets in even after all the fraud, then tax rates will go up. Long term you are stuck. But for a year or two you can accelerate future income into 2020 for future spending. We are going to do that. I had not planned on this and I wanted not to take all of the Mandatory Withdrawal, but doing so under Trump rates is likely better. Keep in mind...the new rates will backdate to Jan 1, 2021. But you have to pay attention to the IRS marginal rate levels. The ideal is to get money twice at the lower bracket in 2 years, rather than one big distribution now in 2020, pushing you way up the brackets.
I am a retired Wall Street consultant, investment inventor, and finance prof. Owning an ETF has been shown to be an excellent stock strategy. I have a mix of both. I multipied my money 30 x in ITW, and likely the same amount staying in the Fidelity S&P 500 fund for three decades.
Well if you are to believe the Biden plan they are going after Retirement 401k’s and other retirements like crazy....better to pull it now than let them have it.
You wont pay any taxes when selling anything in the account but the total distribution taken each year will be taxed as ordinary income.
You joke, but you may not be in the future.
They want your IRA’s, 401ks and Roths and Keoghs............and they will not stop until they get them..................
> It is unclear to me from his statement if he is taking a distribution or simply selling it and leaving the proceeds inside the IRA. Obviously there is NO tax due if it stays inside the IRA.
the original plan is (was?) to sell the spy and then withdraw the proceeds in cash.
Yes. You are correct. In an IRA you can literally day trade with tax im0lications until you withdraw.
It sounds like you’re confused on several points.
As ‘gwjack’ has pointed out, as long as all the trades you’re talking about are done within your IRA account, there are no capital gains taxes due on your sales, regardless of when you purchased your SPY shares. Short-term holding, long-term holding, performance of the shares over the past 5-months, etc. You don’t pay taxes so long as all of the trades and monies are made and settled within the IRA.
Now, if you decide to take a distribution from your IRA, then you will potentially be liable for taxes on the distribution amount. If it is a standard IRA - where your initial and ongoing contributions were done with pre-tax dollars (where you took a tax-deduction at the time the contribution was made) - then any money you take out will be taxed at ordinary income rates at the time of the withdrawal.
If you instead have a Roth IRA - which would have been funded with post-tax dollars (i.e. - no tax-deduction on the contributed amounts at the time you transferred into the Roth) - then you do not owe any taxes on your withdrawn amounts at all. The only caveat to this I’m aware of is that there’s a “5-year rule”. If I’m recalling correctly, you can’t withdraw contributed funds unless they’ve been in the Roth IRA for 5 years or more.
We have two RMD's we have to take every year. If you really don't want to pay taxes....buy a farm...my wife calls it a farm, I call it a ranch. We didn't buy it, we inherited it. There is no better way to "lose money" so to speak, than to own a ranch. Raise cows, hunt and fish, trade stocks over the internet. It's called retirement. :) Nothing better for your health than riding on a tractor all day and listening to talk radio or music on your blue tooth headset in a county that voted 84% for Trump. It has a calming effect.
> At that point, the assets distributed out of the account are taxed at your ordinary marginal tax rate, which - if not working - is probably pretty low.
actually, consulting, ordinary income is still rather high.
so imho this brings up a new issue, whether i cross a tax bracket boundary if i withdraw from the rollover ira. my instinct says yes, so i’ll dig out my last year tax form and see what bracket i am in (iirc high but not the highest).
thanks for reminding me of this consideration! as a possible tax reduction strategy i might stage withdrawals into next year so as to flatten the curve (lol) and avoid the higher tax impact of getting unintentionally pushed into a higher bracket if withdraw all at once. if i stage it into next calendar year, i might be able to avoid getting that unwelcome push.
“...If you wait, the Biden Administration will relive you of all that worry...”
Yep...without a doubt.
The communists have been drooling all over themselves and having wet dreams of confiscating ALL those retirement accounts for years now....
With everything else they got planned to destroy us, I’m sure this one is high on the list.
And you don’t HAVE to take any distributions at all. If you’re happy with your income from SS and/or working you can keep letting it accumulate tax-deferred in the account. You’re only required to take the mandatory distributions by April 1 of the year following the year that you turn age 72. (also note the ROTH vs. regular IRA distinctions on taxation that others have mentioned.)
It is the normal income rate but if you take out a large sum like you are talking about it could push you into a higher tax bracket and a higher tax rate for some of your income.
So, pushing the withdrawal into the next tax year may certainly make a difference. But when you sell the stock within the IRA should not matter relative to capital gains. It will all be treated as ordinary income, when you withdraw.
no doubt.... from a tax perspective.... there is never a good time to take 200K out of an IRA at one time. There may be some other portfolio reasons, but no good tax reasons.
So you can sell any or all of your holdings inside the IRA with no tax consequence what so ever. That is a separate process that has nothing to do with taking a distribution. Now that you have cash in there instead of SPY shares, now you can take as little or as much of your cash as you want, and the amount you take out will be added to all the other income you have for that year to determine your tax rate. If you plan on making less next year perhaps you should consider waiting until after the first of the year to make a withdrawal. Them you could wait an additional year before paying any tax. If you withdraw 50K on DEC 31 2020 you would not owe tax on 4-15 2021. If you withdraw 50K on Jan 1 2021 you would not owe any tax until 16 months later 4-15 2022.
consult your tax guy, we are just a bunch of people on the internet.
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