Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
I am currently draining my 401k account in advance of the eventual sunsetting of the Trump tax cuts, in 2026. I expect to save 4% by taking withdrawals now.
I just realized that any investment profit I make within the retirement account is taxed as income at the 24% rate.
Any profit I make form money invested outside the retirement account, I only have to pay a 15% capital tax rate.
Isn't that another good reason to drain the 401k account now, so I can lower my tax on stock market investments from 24% to 15%?
Even if I sell within a year, I am no worse off since short term capital gains are taxed as income anyway.
Is my logic sound or am I missing something? Thanks.
Last edited by Igor Blevin; 08-09-2023 at 08:47 AM..
I am currently draining my 401k account in advance of the eventual sunsetting of the Trump tax cuts, in 2026. I expect to save 4% by taking withdrawals now.
I just realized that any investment profit I make within the retirement account is taxed as income at the 24% rate.
Any profit I make form money invested outside the retirement account, I only have to pay a 15% capital tax rate.
Isn't that another good reason to drain the 401k account now, so I can lower my tax on stock market investments from 24% to 15%?
Even if I sell within a year, I am no worse off since short term capital gains are taxed as income anyway.
Is my logic sound or am I missing something? Thanks.
that 15% capital gains rate can evaporate if what you own spins off dividends , over the long term .
having every dividend taxed actually wipes that special capital gains rate away
plus you have to be careful of the total income when draining the 401k.
get your overall income high enough and the 15% capital gains rate jumps from 15% to 20% plus a 3.28% surcharge .
not sure if you are going on medicare but that income can also trigger some nasty medicare surcharges too
Be better to do Roth conversions, then there will be no tax upon withdrawal.
Sound idea.
Lets say you convert $200,000 from a 401k to a Roth IRA. What is the tax impact of that? How much cash would I need to have on hand for a nominal 24% tax bracket to pay for taxes on that?
Lets say you convert $200,000 from a 401k to a Roth IRA. What is the tax impact of that? How much cash would I need to have on hand for a nominal 24% tax bracket to pay for taxes on that?
run it through a tax software program .
it goes by your total income plus the conversion as income
that 15% capital gains rate can evaporate if what you own spins off dividends , over the long term .
having every dividend taxed actually wipes that special capital gains rate away
plus you have to be careful of the total income when draining the 401k.
get your overall income high enough and the 15% capital gains rate jumps from 15% to 20% plus a 3.28% surcharge .
not sure if you are going on medicare but that income can also trigger some nasty medicare surcharges too
I have always used funds and they have never paid dividends. That could change in the future, so your comment is valuable to think about.
I am limiting my 401k withdrawal rate to that which stays below the current 32% tax bracket. I don't want to pay 32%. I am keeping everything to 24%.
I will never exceed the $490,000 annual profit that triggers a 20% capital gains tax rate for single filers. I would be thrilled to have that "problem". I would be thrilled just to have $490,000 to invest.
I will be on medicare next year. My income is too high for the base rate for Medicare Part B and "hold harmless" already does not apply for me. My 401k withdrawal will eventually push my Medicare Part B premium up a bracket, but that will happen anyway once I eventually begin collecting Social Security. I wll take SS once my 401k is drained, so my Medicare situation is going to be the same going forward.
Location: Was Midvalley Oregon; Now Eastside Seattle area
13,080 posts, read 7,533,882 times
Reputation: 9819
OP,
Your strategy is a reasonable course of action for taxation.
Investing behavior may change between a taxable acct vs qualified accts. And change between tIRA and Roth.
Early on, I suggested this strategy to DS, to think about limiting his qualified accounts contributions (tIRA, Roth since he was 16, now 38) and favor, taxable LT holdings.
YTMV
OP, You've had a QUACK (QUalified Account ACK) realization.
Last edited by leastprime; 08-09-2023 at 09:38 AM..
So it sounds like my answer is too complicated for my simplistic question but that I have to take more factors into account before simply saying that paying the 15% capital gains tax on "normal" money is better than paying the 24% from what I earn in the retirement account.
I never thought I would have so much money coming in that I would have competing tax implications.
You could look at tax section in Credit Karma, a Intuit company
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
