Capital Gains/Dividends in a tax Deferred Account

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top-dawg
Posts: 5
Joined: Tue Oct 13, 2020 4:50 am

Capital Gains/Dividends in a tax Deferred Account

Post by top-dawg »

Hello,

Before writing I tght. I checked the forum for answers but couldn't find exactly what I was looking for. Here goes:

In a tax managed/deferred account (tIRA or ROTH, etc.), what happens to capital gains, div. distributions, interest income that was made upto the age until you can withdraw without penalties (59.5) or are forced to (RMD)?

Does one ever pay taxes on those gains or income at all? (are those taxes ever back dated?) :?:

Thanks, :beer
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22twain
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Joined: Thu May 10, 2012 5:42 pm

Re: Capital Gains/Dividends in a tax Deferred Account

Post by 22twain »

In a tax-deferred account (tradisional IRA, 401k, 403b), capital gains distributions, dividends and interest simply add to your total balance which you can withdraw without penalty beginning at age 59.5. You pay tax on the amount withdrawn, as ordinary income, regardless of whether the dividends etc. were re-invested or left as cash.

In a Roth (not ROTH, see my signature :wink: ), you pay no taxes at all, on any amount withdrawn, provided you do it after age 59.5.
Last edited by 22twain on Fri May 07, 2021 5:31 am, edited 1 time in total.
It's "Roth", not "ROTH". Senator William Roth was a person, not an acronym.
livesoft
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Re: Capital Gains/Dividends in a tax Deferred Account

Post by livesoft »

Your thread title specially states "tax Deferred" which is NOT a Roth account.

Yes, you eventually pay taxes on distributions in that the taxes on those distributions are tax-deferred. A qualified withdrawal whether from original investment or any dividends or capital gains is just like withdrawing untaxed cash and is put on your tax return as cash that is included in your income and subject to any income taxes. Of course, your income tax situation could be that you report so little income that you do not have to pay income taxes.

For a Roth IRA, qualified withdrawals are not taxed even if they arise from interest, dividends, or capital gains from the assets or cash in the Roth.
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crefwatch
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Location: New Jersey, USA

Re: Capital Gains/Dividends in a tax Deferred Account

Post by crefwatch »

Except for non-deductible contributions you made (many, maybe even most people don’t make any), any money you ever take out of an IRA or a 403(b) is taxed as ordinary income. That is, like wages. There are no capital gains or qualified dividends preferences. The concept of long-term and short-term do not exist in an IRA or a 403(b).
Topic Author
top-dawg
Posts: 5
Joined: Tue Oct 13, 2020 4:50 am

Re: Capital Gains/Dividends in a tax Deferred Account

Post by top-dawg »

Great thanks everyone for your insight.

I can deduce that I can trade, collect distributions (dividends, interest) in a ROTH, Traditional IRA, 403b, etc. and only pay taxes (minus ROTH) on my withdrawals on or after 59.5 in age.
chassis
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Joined: Tue Mar 24, 2020 4:28 pm

Re: Capital Gains/Dividends in a tax Deferred Account

Post by chassis »

In a tIRA you pay no tax until you withdraw funds. This means you can trade (buy and sell investments) with no capital gains taxes. Contributions or gains are the same in this example, there is no distinction between them.
scrabbler1
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Re: Capital Gains/Dividends in a tax Deferred Account

Post by scrabbler1 »

chassis wrote: Mon May 17, 2021 7:46 am In a tIRA you pay no tax until you withdraw funds. This means you can trade (buy and sell investments) with no capital gains taxes. Contributions or gains are the same in this example, there is no distinction between them.
This is why IMHO rebalancing works so well in a tIRA or 401k/403b. I don't have to worry about any transaction costs such as cap gain taxes when I try to sell-high and buy-low in any rebalancing move.
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