Quote:
Originally Posted by Rain Man
I was thinking about something the other day involving tax rates, and I think the government is running a little IRA grift on us. It's still better to put money into an IRA than to not do it, but this is something I'd never thought about.
If you put money into a stock in an IRA and the price grows, then yay, you make money. When you eventually take it out, you pay regular income tax on the gains, which is going to vary, but it's almost certain to be 22% to 35% for most people.
If you bought that same stock in a regular investment account, you're going to pay capital gains tax when you sell it, which is probably going to be 15% for most people.
So by holding it in an IRA, you end up paying a higher tax on the gains.
Now, it's still better to put it in an IRA because it's pre-tax money going in, which gives you a bigger investment, and the taxes are deferred for many years, but I'd never thought about the fact that you take a bigger bite coming out.
Am I thinking about this right? Do I have any wrong assumptions?
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Depends on what you have coming in for income in Retirement. If you're at 35% at age 40, and 22% in retirement, that is almost a wash. But if all you have is SSA (not all of which is taxable) and a RMD and (more, some of those are ROTH), it's pretty easy for a taxpayer and spouse to get under 83K, putting them in the 12% bracket, so the gains would actually be CHEAPER than at any time in history.
Plus the time value of the tax dollars you didn't have to pay, presuming you're getting a return on that.