I understand that positions in an IRA/Sep are not taxed as long as they stay within the IRA/Sep. I understand that if you withdrawal money from that IRA and take it out of the system, so to speak, that has a gain it is taxed as regular income. I understand it isn't taxed as long as you buy/sell within the position. So, those aren't the question. My question is: If you put money into an IRA or SEP IRA, and you took the deduction on your Fed income taxes as contributions in earlier years, and now the position(s) have lost money (ie Amazon is down 95%), is any of the money that is leftover taxed if you remove it (withdraw it) from the account? So, for example, if you invested $1000 in 2021 or 2022 and it's now worth only $400, is the $400 taxed? Yes, I read that losses aren't "deductible" since 2018, so in other words, is any amount removed from the actual IRA taxable as income?
gains and losses don't count in an IRA.
when you take a distribution it is taxed.
It's always been this way.
So, regardless of where you started, it's where you end up 🙂 Any amount is taxed when removed from the IRA, correct?
You just pay tax on the actual amount you take out. So if there were losses you will have less to withdraw and less income to be taxed.
fortunately Amazon is not down 95%
if you have AMZN stock in your IRA, buy more with your next IRA contribution.
It will go back up.
Actually, from what I was reading, you could pare taxes on w/d from an ira against original basis prior to 2018. That's what made me ask the question. No where does anyone of the financial expert sites say "anything you take out you pay taxes on regardless of your basis." Simple sentence that is no where to be found. Thanks again for your help.
"and less income to be taxed"
not much consolation for watching your retirement funds go down.
You used to be able to deduct it but only If this was your ONLY IRA and you closed it AND did NOT take the tax deduction for your contributions.
That happened to my IRA one year. My 2,000 IRA deduction was in a limited partnership probably for a mall in Florida. This was back in the 80s I think when IRAs were a new thing. Couldn't take a loss because we have no tax basis in it. Nothing you can do about it. At least I got the tax deduction for my contribution.
basis in an IRA is any contribution that was not deductible or you elected to make non-deductible.
it is not your cost basis as in a regular investment account.
Oops. My mistake. Was looking the wrong line. Only 25% LOL Others are down 90%. Roku, for example, is a shadow of it's former self ... Thanks.
Funny. Reminds me of the old Marx Brothers bit? "How much would it cost for your not to play?" "You can't afford it, boss."
Yes, zero is definitely a lot less to be taxed. 🙂 Have a great day.
That's how I look at them now. I'd rather invest in the IRA and SEP and take my chances then just send more money to the government to send to the military industrial complex. 🙂
you will be happier in retirement with a Roth IRA that is totally tax free,
rather than a Traditional IRA that grows into a high tax bracket federal and state and makes your social security taxable also.
Nope. The whole reason for the IRAs and SEP is to lower the taxes (and I'm in the lowest bracket to begin with) ... so no use for a Roth (and I'm over 65). I would have done the self-employed new-fangled 401 if I could have figured it out during the last 2 days of the year Forgot to look at it before then...
Pre-tax IRA contributions defer taxable income. They do not necessarily lower taxes.
You shouldn't just be looking at immediate tax savings when what you are doing is pushing the tax liability into the future. If you are in a low tax bracket, a Roth IRA contribution likely makes more sense than a traditional IRA contribution where deferring the income doesn't really buy you any tax savings in the long run. Better to get the opportunity for tax-free growth instead of taxable growth. Even a capital investment outside of an IRA would likely be better (although perhaps not better that a Roth IRA contribution) because if you are in a low tax bracket your long-term capital gains could be taxable at 0% (or 15% if you are in a slight higher tax bracket) instead of as ordinary income when distributed from a traditional IRA. Capital investments outside of an IRA also get a step-up in basis when inherited by your beneficiary(s).
The same reasoning goes for a traditional 401(k) contribution. Like a traditional IRA, it defers taxable income to the future, it doesn't eliminate taxable income.
I always love it when I see investments referred to as "Tax free growth" ... is similar to the "winnings" when you cash out with what's left from the slot machine. 🙂 Haven't you seen the asterisk? "Investments may lose value." Yep.
Yes, investments outside of the IRA and SEPs make sense. So, if you are careful, watch cap gains, income and take advantage to minimize those, the gains can fall within 0% for a tax bracket.
If there are no beneficiaries (another asterisk or footnote that is usually assumed but often has no bearing on a person's individual situation) that can be another box to uncheck. (Just try to find online "advice" on where to live, retire, what to invest in that isn't all about the kids, or not being white, married and straight).
IRA and SEP are just another vehicle that a person can use to defer paying taxes immediately to 1)lower your taxes by taking a deduction; 2) in order to pay less to the federal government. And actually, you can save quite a bit over the years in taxes by taking advantage of the deduction and putting those to work in a low/no cost account that is connected to your bank. You know, for all those winnings. (especially after 59 1/2).
There are few deductions left, especially if you aren't self-employed, and even then they are being reduced (meals, entertainment, or mileage now are a nightmare to figure). And actually, setting up the 401K for SE makes great sense - but the asterisk/footnote/secret is you can't wait until April 15th like you can with the others; it has to be done per calendar year. But, self employed people should look into them because you can defer a larger portion of taxed income when you need to. Anyway, that's my two cents. I'm not an expert; I just play one on tv.
Tucker,
While you cannot deduct losses in qualified accounts, one way to make "lemonade from lemons" is to convert part/all of your Traditional IRA to a Roth IRA when your account balance is down, which if you are like virtually everyone else, 2022 was not kind to you. The idea is you are is you are "selling low" when you convert, and then hoping the rebound will come once that money is in your Roth IRA. In effect, you "recover" your loss with tax-free gain.
I hope that helps. I am a big fan of converting qualified money to a Roth IRA, provided the taxpayer is in a lower tax bracket. If taxpayers can convert money and keep their total income in the 12% federal tax bracket, I think they should. Also, to get the most out of the conversion, taxpayers should not withhold any money from the IRA to pay for taxes, but she pay the tax from other, nonqualified sources. The reason is that the taxpayer should convert as much as possible, and if they withhold money for taxes, that money of course never goes into the Roth IRA.
If you are like a lot of advisors, I think we will see tax rates go up in the future. That is the best reason to convert now, provided the taxpayer is in a lower tax bracket.
RT, CFP
I'll look into the conversion, though I assume I'll have to pay taxes on something right?
Yes, you will have to pay income taxes on the conversion. I know it is tough to pay another tax bill, but it is hard to imagine a future tax rate of lower than 12% (if that is where you are at). And depending on your state tax laws, you may or may not have to pay state income taxes. But maybe not.
But building up a nice size Roth IRA, and knowing ALL of that money won't ever be subject to income taxes, is really nice. I sure wish Roth IRAs existing back when I was starting to invest (I am 61).
As a side note, a good investment strategy for Roth IRAs is to put the investments you expect to grow the most in your Roth, e.g. stocks. The reason is, you want as much tax-free growth as possible in the Roth. This is how I manage my clients investment accounts whenever possible. So it is one more incentive to convert your money to a Roth if you have a portfolio of stocks and bonds in various accounts.