L/T Capital Gains Tax Exemption

Aren't capital gains in an IRA taxed as ordinary income when withdrawn?

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I believe you are correct. And removing funds from the IRA bumps the income above $65,000 is another concern. Also early withdrawal penalties may apply.

In other words, it's true, but not too good for most people.

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Hugh, the tax break doesn't apply to all income types, just long-term capital gains and "qualified dividends", both from investments held in taxable accounts. An IRA distribution is "ordinary income" which is taxed at the normal bracket rates.

That $65,100 figure is the top of the 15% tax bracket for married couples who file jointly...really the tax code states that the long-term capital gains rate is 0% for someone in the 15% or lower tax brackets. Someone in that situation (the majority of taxpayers) could sell a stock or mutual fund held in a taxable account, and pay no tax on the gains, as long as their total income remained under $65,100.

Example: You figure out your taxes and end up with $55,000 in taxable income. You have a mutual fund with $10,000 in long-term gains. You could sell the mutual fund and pay no federal income tax, because your taxable income is $65,000, which is below the top of the 15% tax bracket. When you calculate your taxes, the worksheet will take out that $10,000 and give it the 0% tax rate. Your state taxes would still apply.

-Tad

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wait a minute! I keep hearing certain people saying only the super rich have capital gains. What the heck?

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