Unrealized Capital Gains Taxes

[Blues Man]

For this reason the only retirement vehicle worth using is a Roth 401 where you pay the tax on your contribution which is very little for most people but ALL the gains are TAX FREE so your money goes farther

Roth’s are only beneficial in certain circumstances. Specifically, when your tax rate at retirement is higher than your tax rate when you earn the money. If your tax rate were to be equal throughout your entire life, there is zero difference.

The vast majority of people are going to pay lower tax rates at retirement since their income will almost certainly be lower. That’s obviously not true for everyone.

The more accurate way to look at a 401k is that it avoids capital gains entirely and that’s true whether it’s a traditional or a Roth 401k.

The only way a traditional 401 beats capital gains taxes is if you want to live on less than 41K a year.

A Roth is always the best choice because the largest part of your retirement savings portfolio is tax free

 

[colfax_m]

The only way a traditional 401 beats capital gains taxes is if you want to live on less than 41K a year.

That’s false because in order to get investments to get to capital gains, you have to pay income tax first.

So you get paid $10k in salary. You pay income tax. You invest it. Then you pay capital gains on the gains.

Otherwise get $10k in salary. You pay no income tax because you put it in a 401k. It grows. You pay income tax on the gains. You skip capital gains entirely.

401k avoids all capital gains tax entirely. It’s not the difference between income tax or capital gains. It’s the difference between capital gains tax or no capital gains tax.

 

[berg80]

Virtually all of his appointee’s are kooks.

All his appointees are highly qualified and experienced, the opposite of Trump appointees.

'Utterly unqualified': Critics skeptical Rick Perry is prepared to lead DOE

Rick Perry is now set to join a Trump administration flush with fellow cabinet picks who are openly hostile toward the concept of climate change.

www.nbcnews.com

 

[Blues Man]

The only way a traditional 401 beats capital gains taxes is if you want to live on less than 41K a year.

That’s false because in order to get investments to get to capital gains, you have to pay income tax first.

So you get paid $10k in salary. You pay income tax. You invest it. Then you pay capital gains on the gains.

Otherwise get $10k in salary. You pay no income tax because you put it in a 401k. It grows. You pay income tax on the gains. You skip capital gains entirely.

401k avoids all capital gains tax entirely. It’s not the difference between income tax or capital gains. It’s the difference between capital gains tax or no capital gains tax.

It'a a wash since the taxes you deferred over your entire working life are paid back in the first few years of retirement

And you can't put 100% of your salary into a 401 K because FICA and state taxes still have to come out first.

So what you do is invest 10K out of your net earnings therefore the total of what you deposited can be withdrawn tax free since you already paid the taxes on it and ONLy the gains are taxed

So if over 40 years you put in 10K a year the first 400000 you withdraw will not be taxed and the rest will be taxed at 15% if you average 8.5% ROR your gains will be almost 2.7 million.

In a traditional 401 k you would be forced to withdraw $109500 and you would pay ordinary income taxes on that and even if you didn't need that much to live on you still have to take it out and pay the taxes.

With a Roth you still would have to withdraw the same amount but there would be no taxes due.

With a non-retirement account the first 400K you withdraw would be tax free and you would only have to take out as much as you need

 

[colfax_m]

The only way a traditional 401 beats capital gains taxes is if you want to live on less than 41K a year.

That’s false because in order to get investments to get to capital gains, you have to pay income tax first.

So you get paid $10k in salary. You pay income tax. You invest it. Then you pay capital gains on the gains.

Otherwise get $10k in salary. You pay no income tax because you put it in a 401k. It grows. You pay income tax on the gains. You skip capital gains entirely.

401k avoids all capital gains tax entirely. It’s not the difference between income tax or capital gains. It’s the difference between capital gains tax or no capital gains tax.

It'a a wash since the taxes you deferred over your entire working life are paid back in the first few years of retirement

And you can't put 100% of your salary into a 401 K because FICA and state taxes still have to come out first.

So what you do is invest 10K out of your net earnings therefore the total of what you deposited can be withdrawn tax free since you already paid the taxes on it and ONLy the gains are taxed

So if over 40 years you put in 10K a year the first 400000 you withdraw will not be taxed and the rest will be taxed at 15% if you average 8.5% ROR your gains will be almost 2.7 million.

In a traditional 401 k you would be forced to withdraw $109500 and you would pay ordinary income taxes on that and even if you didn't need that much to live on you still have to take it out and pay the taxes.

With a Roth you still would have to withdraw the same amount but there would be no taxes due.

With a non-retirement account the first 400K you withdraw would be tax free and you would only have to take out as much as you need

What you’re forgetting is that a tax deferred traditional 401k means you have more money to invest since you aren’t paying taxes and that extra money adds up.

So let’s say your marginal tax rate is 20%. That means if you had enough money to invest $10k after taxes to a Roth account, you’d have $12k to invest to a tax deferred traditional account. At the end of the day, you’re going to have a lot more money in that account with a traditional account. If your income tax rate is less than 20%, you come out way ahead.

 

[Blues Man]

The only way a traditional 401 beats capital gains taxes is if you want to live on less than 41K a year.

That’s false because in order to get investments to get to capital gains, you have to pay income tax first.

So you get paid $10k in salary. You pay income tax. You invest it. Then you pay capital gains on the gains.

Otherwise get $10k in salary. You pay no income tax because you put it in a 401k. It grows. You pay income tax on the gains. You skip capital gains entirely.

401k avoids all capital gains tax entirely. It’s not the difference between income tax or capital gains. It’s the difference between capital gains tax or no capital gains tax.

It'a a wash since the taxes you deferred over your entire working life are paid back in the first few years of retirement

And you can't put 100% of your salary into a 401 K because FICA and state taxes still have to come out first.

So what you do is invest 10K out of your net earnings therefore the total of what you deposited can be withdrawn tax free since you already paid the taxes on it and ONLy the gains are taxed

So if over 40 years you put in 10K a year the first 400000 you withdraw will not be taxed and the rest will be taxed at 15% if you average 8.5% ROR your gains will be almost 2.7 million.

In a traditional 401 k you would be forced to withdraw $109500 and you would pay ordinary income taxes on that and even if you didn't need that much to live on you still have to take it out and pay the taxes.

With a Roth you still would have to withdraw the same amount but there would be no taxes due.

With a non-retirement account the first 400K you withdraw would be tax free and you would only have to take out as much as you need

What you’re forgetting is that a tax deferred traditional 401k means you have more money to invest since you aren’t paying taxes and that extra money adds up.

So let’s say your marginal tax rate is 20%. That means if you had enough money to invest $10k after taxes to a Roth account, you’d have $12k to invest to a tax deferred traditional account. At the end of the day, you’re going to have a lot more money in that account with a traditional account. If your income tax rate is less than 20%, you come out way ahead.

It's not that significant and the fact that you pay regular income tax on every dollar out and you have to take out what the government tells you to every year just means you will pay more in taxes.

The gains will always far outweigh your deposits so it's the tax treatment of the gains that will affect you the most.

The whole point of using a Roth is to put in the same amount of after tax dollars as you would pretax dollars in a 401.

Your cost in taxes is minuscule compared to the money you save in taxes after retirement.

Lets use the 2000 in taxes a year for the guy with the Roth 401 over 40 years that's 80K more he paid that the gut with the traditional 401 but since the both deposited the same amount over 40 years their total is the same.

we'll use the 8.5% ROR again

so 833.33 per month for 40 years is 3,069,119

So the guy who paid 80K in taxes over 40 years gets all that tax free.

The other guy pays taxes every year in the first year he will have to withdraw 119402 and pay 19, 480 in income taxes
in year 2 119402 19,480
in year 3 118900 19243

So in about 5 years the retiree will pay 80K in taxes that the guy with the Roth paid over 20 years but the guy with the traditional 401 will have to keep paying taxes until he dies

So paying a little bit up front over 40 years will save you way more in taxes than a traditional 401.

 

[colfax_m]

It's not that significant and the fact that you pay regular income tax on every dollar out and you have to take out what the government tells you to every year just means you will pay more in taxes.

The gains will always far outweigh your deposits so it's the tax treatment of the gains that will affect you the most.

It’s actually quite significant. The extra investment compounds and at the end your account is bigger by the same percentage as taxes you would have paid in a Roth account.

Yes, you will pay “more” in taxes if you pay amount but the amount you keep is identical if you pay taxes before you invest or after you withdraw if (and only if) your tax rate is the same. Again, the tax rate most people pay in retirement is less, so those people come out ahead.

 

[Blues Man]

It's not that significant and the fact that you pay regular income tax on every dollar out and you have to take out what the government tells you to every year just means you will pay more in taxes.

The gains will always far outweigh your deposits so it's the tax treatment of the gains that will affect you the most.

It’s actually quite significant. The extra investment compounds and at the end your account is bigger by the same percentage as taxes you would have paid in a Roth account.

Yes, you will pay “more” in taxes if you pay amount but the amount you keep is identical if you pay taxes before you invest or after you withdraw if (and only if) your tax rate is the same. Again, the tax rate most people pay in retirement is less, so those people come out ahead.

Only if you assume the guy with the Roth will be investing a smaller amount but most don't.

In my example on a weekly or biweekly pay schedule it's only 40 bucks a week less in take home pay.

So you have the choice to pay 80K in taxes over 40 years and then pay nothing or defer and pay that 80K in the first 5 years of retirement and then have to keep paying until you die

 

[colfax_m]

It's not that significant and the fact that you pay regular income tax on every dollar out and you have to take out what the government tells you to every year just means you will pay more in taxes.

The gains will always far outweigh your deposits so it's the tax treatment of the gains that will affect you the most.

It’s actually quite significant. The extra investment compounds and at the end your account is bigger by the same percentage as taxes you would have paid in a Roth account.

Yes, you will pay “more” in taxes if you pay amount but the amount you keep is identical if you pay taxes before you invest or after you withdraw if (and only if) your tax rate is the same. Again, the tax rate most people pay in retirement is less, so those people come out ahead.

Only if you assume the guy with the Roth will be investing a smaller amount but most don't.

On a weekly or biweekly pay schedule it's only 40 bucks a week less in take home pay.

So you have the choice to pay 80K in taxes over 40 years and then pay nothing or defer and pay that 80K in the first 5 years of retirement and then have to keep paying until you die

Of course the guy with the Roth is investing a smaller, he has less money to invest because he has to pay taxes. This is a fact.

We are comparing apples to apples. You can’t just say it’s better if you contribute more.

 

[Blues Man]

It's not that significant and the fact that you pay regular income tax on every dollar out and you have to take out what the government tells you to every year just means you will pay more in taxes.

The gains will always far outweigh your deposits so it's the tax treatment of the gains that will affect you the most.

It’s actually quite significant. The extra investment compounds and at the end your account is bigger by the same percentage as taxes you would have paid in a Roth account.

Yes, you will pay “more” in taxes if you pay amount but the amount you keep is identical if you pay taxes before you invest or after you withdraw if (and only if) your tax rate is the same. Again, the tax rate most people pay in retirement is less, so those people come out ahead.

Only if you assume the guy with the Roth will be investing a smaller amount but most don't.

On a weekly or biweekly pay schedule it's only 40 bucks a week less in take home pay.

So you have the choice to pay 80K in taxes over 40 years and then pay nothing or defer and pay that 80K in the first 5 years of retirement and then have to keep paying until you die

Of course the guy with the Roth is investing a smaller, he has less money to invest because he has to pay taxes. This is a fact.

We are comparing apples to apples. You can’t just say it’s better if you contribute more.

No it's not that's the assumption you are making. And it's not contributing more the net contribution is the exact same amount. You are saying that it will be less and that's not necessarily true especially when most people are only putting 5 or 6% of their pay into a 401. Paying that little bit of tax up front reaps huge savings in retirement

I opened a Roth IRA when it was implemented. I was maxing out a traditional IRA before that. I put the same amount into the Roth, I didn't decrease the amount. And most people don't even feel that extra tax burden because it's spread out over decades.

 

[colfax_m]

No it's not that's the assumption you are making.

I opened a Roth IRA when it was implemented. I was maxing out a traditional IRA before that. I put the same amount into the Roth, I didn't decrease the amount. And most people don't even feel that extra tax burden because it's spread out over decades.

Taxes are not an assumption, they are a fact. Sure, you contributed the same amount of money to the accounts, but to do so you had to pay the taxes in the income you contributed to the Roth IRA. It doesn’t matter if you “felt” the taxes or not, you paid it. That means you came out “ahead” with the Roth only because you paid more to do it in the first place and that means it’s not an apples to apples comparison.

 

[CrusaderFrank]

Biden’s treasury secretary, the kook that she is, is in favor of taxing unrealized capital gains. How dumb can these folks be?

Mac1958 you voted for theve geniuses. What do you think about this ridonkulous idea?

Oaktree's Howard Marks says this tax proposal in the U.S. makes investing less attractive

That would be a shitty idea. But I've never heard her say that, so I'd need to know more. And I very much doubt that, if she did think it, it would go anywhere.

No reason to make assumptions on such thin evidence.

Virtually all of his appointee’s are kooks. Yes, Yellon thinks it is a good idea.

Biden’s treasury secretary, the kook that she is, is in favor of taxing unrealized capital gains. How dumb can these folks be?

Mac1958 you voted for theve geniuses. What do you think about this ridonkulous idea?

Oaktree's Howard Marks says this tax proposal in the U.S. makes investing less attractive

That would be a shitty idea. But I've never heard her say that, so I'd need to know more. And I very much doubt that, if she did think it, it would go anywhere.

No reason to make assumptions on such thin evidence.

It is not thin evidence.

She raised eyebrows of some senators and Wall Street when she said that Treasury would consider the possibility of taxing unrealized capital gains - through a “mark-to-market” mechanism - as well as other approaches to boost revenues.

Don’t kid yourself. She buys into all the left-wing kooky economic theories. The “pay their fair share” crowd and fixing “economic inequality” meaning playing Robin Hood. You voted for it and virtually all of us will pay for it.

Run a decent candidate and I'll be able to do what I prefer to do, and that's vote third party.

Run a dangerous, ignorant, destructive buffoon and I'll have to vote Democrat.

This idea won't go anywhere.

You hope. You voted for Socialist, this is what you get

 

[Mac1958]

Biden’s treasury secretary, the kook that she is, is in favor of taxing unrealized capital gains. How dumb can these folks be?

Mac1958 you voted for theve geniuses. What do you think about this ridonkulous idea?

Oaktree's Howard Marks says this tax proposal in the U.S. makes investing less attractive

That would be a shitty idea. But I've never heard her say that, so I'd need to know more. And I very much doubt that, if she did think it, it would go anywhere.

No reason to make assumptions on such thin evidence.

Virtually all of his appointee’s are kooks. Yes, Yellon thinks it is a good idea.

Biden’s treasury secretary, the kook that she is, is in favor of taxing unrealized capital gains. How dumb can these folks be?

Mac1958 you voted for theve geniuses. What do you think about this ridonkulous idea?

Oaktree's Howard Marks says this tax proposal in the U.S. makes investing less attractive

That would be a shitty idea. But I've never heard her say that, so I'd need to know more. And I very much doubt that, if she did think it, it would go anywhere.

No reason to make assumptions on such thin evidence.

It is not thin evidence.

She raised eyebrows of some senators and Wall Street when she said that Treasury would consider the possibility of taxing unrealized capital gains - through a “mark-to-market” mechanism - as well as other approaches to boost revenues.

Don’t kid yourself. She buys into all the left-wing kooky economic theories. The “pay their fair share” crowd and fixing “economic inequality” meaning playing Robin Hood. You voted for it and virtually all of us will pay for it.

Run a decent candidate and I'll be able to do what I prefer to do, and that's vote third party.

Run a dangerous, ignorant, destructive buffoon and I'll have to vote Democrat.

This idea won't go anywhere.

You hope. You voted for Socialist, this is what you get

Biden is only a socialist in the fevered, ignorant, misguided minds of Trumpsters.

 

[Blues Man]

No it's not that's the assumption you are making.

I opened a Roth IRA when it was implemented. I was maxing out a traditional IRA before that. I put the same amount into the Roth, I didn't decrease the amount. And most people don't even feel that extra tax burden because it's spread out over decades.

Taxes are not an assumption, they are a fact. Sure, you contributed the same amount of money to the accounts, but to do so you had to pay the taxes in the income you contributed to the Roth IRA. It doesn’t matter if you “felt” the taxes or not, you paid it. That means you came out “ahead” with the Roth only because you paid more to do it in the first place and that means it’s not an apples to apples comparison.

Exactly you pay a little tax every year over decades so you pay nothing for the rest of your life.

And it is apples to apples to apples because the contribution is the same and the tax difference is accounted for when calculating the taxes one will pay in retirement.

You pay 80K over 40 years and nothing in retirement or you pay nothing for 40 years and 80K in the first 5 years of retirement and then keep paying until you die.

So the guy with the Roth is not saving more he is saving the exact same amount and prepaying his income taxes for his retirement AND he winds up with more money than the other guy

 

[georgephillip]

I agree with this 100%. Capital gains and labor shouldn't be treated differently. This is one way that the wealthy game the tax system and is rife with abuse.

Lincoln had good insights into this fight

I don't think Abe ever saw a day when government would serve the interests of its richest ten percent of voters over the vast majority but that seems to be how it works today.

Investment theory of party competition - Wikipedia

"The Investment theory of party competition is a political theory developed by Thomas Ferguson, Emeritus Professor of Political Science at the University of Massachusetts Boston.

"The theory focuses on how business elites, not voters, play the leading part in political systems.

"The theory offers an alternative to the conventional, voter-focused, Voter Realignment theory and Median voter theorem, which has been criticized by Ferguson and others."

 

[ThisIsMe]

Biden’s treasury secretary, the kook that she is, is in favor of taxing unrealized capital gains. How dumb can these folks be?

Mac1958 you voted for these geniuses. What do you think about this ridonkulous idea?

Oaktree's Howard Marks says this tax proposal in the U.S. makes investing less attractive

Taxing capital gains as ordinary income would reduce tax avoidance and levels of speculation in the secondary market which, in the long run, would prove beneficial to society as a whole.

How might the taxation of capital gains be improved?

"Taxing capital gains at the same rates as ordinary income would simplify the tax system by removing major incentives for tax sheltering and other attempts to manipulate the system. This could be accomplished by taxing accrued capital gains on an annual basis."

I agree with this 100%. Capital gains and labor shouldn't be treated differently. This is one way that the wealthy game the tax system and is rife with abuse.

You are conflating 2 different things. If you want to tax REALIZED capital gains as ordinary income that is one discussion. Taxing UNREALIZED capital gains in entirely different.

I'm not confusing anything, I'm just responding to the statement from the previous poster.

Taxing unrealized capital gains, like any argument, has pros and cons. Yellen is just hearing the argument. No reason to get anyone's panties in a wad.

Would you be in favor of taxing your next year's salary, today?

Taxing unrealized capital gains is a bad idea because it doesn't represent income, just money sitting in an account. Its not guaranteed income, the markets will fluctuate.

Also, why do you folks want to mess with peoples retirements? You think this will only affect the rich? I assure you I don't want to pay taxes on my unrealized 401k gains. The point of the 401k was to have pre tax income being used to help grow that as a benefit to me for retirement. Now the left wants to remove that benefit.

 

[ThisIsMe]

Biden’s treasury secretary, the kook that she is, is in favor of taxing unrealized capital gains. How dumb can these folks be?

Mac1958 you voted for these geniuses. What do you think about this ridonkulous idea?

Oaktree's Howard Marks says this tax proposal in the U.S. makes investing less attractive

Taxing capital gains as ordinary income would reduce tax avoidance and levels of speculation in the secondary market which, in the long run, would prove beneficial to society as a whole.

How might the taxation of capital gains be improved?

"Taxing capital gains at the same rates as ordinary income would simplify the tax system by removing major incentives for tax sheltering and other attempts to manipulate the system. This could be accomplished by taxing accrued capital gains on an annual basis."

I agree with this 100%. Capital gains and labor shouldn't be treated differently. This is one way that the wealthy game the tax system and is rife with abuse.

You are conflating 2 different things. If you want to tax REALIZED capital gains as ordinary income that is one discussion. Taxing UNREALIZED capital gains in entirely different.

I'm not confusing anything, I'm just responding to the statement from the previous poster.

Taxing unrealized capital gains, like any argument, has pros and cons. Yellen is just hearing the argument. No reason to get anyone's panties in a wad.

Also, you want to tax people on money they haven't received.

Imagine for a moment we have a good year, and your 401k goes up by $30,000, the irs is going to want you to pay taxes on that "income", now. Thats a tax bill you may not be able to afford.

For some people, this could be putting them into financial peril.

 

[Blues Man]

Biden’s treasury secretary, the kook that she is, is in favor of taxing unrealized capital gains. How dumb can these folks be?

Mac1958 you voted for these geniuses. What do you think about this ridonkulous idea?

Oaktree's Howard Marks says this tax proposal in the U.S. makes investing less attractive

Taxing capital gains as ordinary income would reduce tax avoidance and levels of speculation in the secondary market which, in the long run, would prove beneficial to society as a whole.

How might the taxation of capital gains be improved?

"Taxing capital gains at the same rates as ordinary income would simplify the tax system by removing major incentives for tax sheltering and other attempts to manipulate the system. This could be accomplished by taxing accrued capital gains on an annual basis."

I agree with this 100%. Capital gains and labor shouldn't be treated differently. This is one way that the wealthy game the tax system and is rife with abuse.

You are conflating 2 different things. If you want to tax REALIZED capital gains as ordinary income that is one discussion. Taxing UNREALIZED capital gains in entirely different.

I'm not confusing anything, I'm just responding to the statement from the previous poster.

Taxing unrealized capital gains, like any argument, has pros and cons. Yellen is just hearing the argument. No reason to get anyone's panties in a wad.

Also, you want to tax people on money they haven't received.

Imagine for a moment we have a good year, and your 401k goes up by $30,000, the its is going to want you to pay taxes on that "income", now. Thats a tax bill you may not be able to afford.

For some people, this could be putting them into financial peril.

I don't think the government will include a 401 k because those gains are already treated like regular income

 

[colfax_m]

So the guy with the Roth is not saving more he is saving the exact same amount and prepaying his income taxes for his retirement AND he winds up with more money than the other guy

He isn’t because all the money he “prepaid” in taxes could have been used for other things, like 401k contributions.

 

[georgephillip]

“Accrued capital gains” means unrealized capital gains. I guess this is meant to trick some folks. Where does this stop? We are taxed on actual income, not theoretical income.

Thanks for the information; I didn't understand the distinction prior to joining this thread. Do you believe this is an accurate definition of the subject?

Unrealized Gain

"An unrealized gain is a potential profit that exists on paper, resulting from an investment. It is an increase in the value of an asset that has yet to be sold for cash, such as a stock position that has increased in value but still remains open."

There is another suggestion on the left calling for imposing a property tax on stocks and bonds.

How does that sound to you?