Dockside Chat - IRA Tax Consequences

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LI Sound Grunt
04-05-2008, 10:45 AM
I know we have lots of financial management types here so..I know this because I have no idea what you are talking about in many of the money posts... :grin:

I retired early from my full-time job. I just found out I can still contribute earned income to an IRA even though I am retired and collecting a pension because I am less than 69. I never knew that. But apparantly there are some restrictions even on that. Anyway here are my questions:

In a traditional IRA do you pay any special tax rate (e.g. capital gains) on your profits when you start withdrawing? Or are all withdrawals taxed at your then current rate?

With a Roth, Are both profits and the principal tax free when you withdraw funds?

I found lots of stuff on the web but not this.. ;?



04-05-2008, 01:13 PM
IRA withdrawl is taxed as ordinary income and yes you can contribute till age 70

Roth is never deducted from income and the trade off is the earnings are tax free, I think I am also correct in that you can contribute to the Roth no matter what your age but
I will have to check on that one for you.

04-05-2008, 02:02 PM
First off congrats on retiring with a good pension. Thats not so easy to do today.
I think what your missing is the word EARNED income. That means w-4 wages, not investment or social security or pension $$$.
If you have a working job yes you can contribute to either type of IRA.
The Roth IRA is for after taxed $$$ and is withdrawn tax free after five years.
A regular IRA is untaxed $$$ when deposited and is taxed as ordinary income when its withdrawn..
Hope this helps
PS you need to move south were there is no state income tax and year around fishing

04-05-2008, 05:24 PM
Isn't the Roth plan a sweet deal? I converted to it when they introduced it back around 98. If you can invest wisely and build your account over the years all your earnings are tax free. Least that's the way I understand it to be.

04-05-2008, 09:15 PM
The fed govt will be changing the rules on the Roth Ira. Why do I say that? Because there is money an individual can earn that isn't taxed. The Dems or the Repubs can't stand to see a dollar pass them by without them getting at least 40 cents of it.

04-06-2008, 07:26 AM
Tyme2fish is right on the money. The Roth is too good to be true. Congress, and some fool president, will "modify" eventually. Sooner than later. At the very least, they will be "frozen" and it might become illegal to make any additional contributions.

In only the past 30 yrs consider thus...

Consider that Social Security was "tax free."

Consider your income liability to Medicare taxes was "capped." Now it's unlimited

Obama wishes to make Social Security taxed on your unlimited income. (Capped now at just over 100k/annum)

Consider that your top tax rate was.....Pick a number. Now consider the ATM as your tax rate.

Listen to Tyme2fish. He 'sees' the future.

04-06-2008, 08:09 AM
You guys are right on the money in regards to politicians and their putting their fingers into the pie.The same thing goes with SS.My 2 sons are in their 30`s and have been paying the max into FICA taxes and probably will never get a dime from it.Did some say TERM LIMITS!!!

04-06-2008, 12:28 PM
Actually, the benefits of Roth IRA's are being expanded. Specifically, the earned income limit is being increased (in 2010 I believe) so the family earning above the current limits to put into a Roth will have the ability to utilize a roth in 2010. There will also be an opportunity to roll over traditional IRS's into Roth IRA's at that time. The caveat is that at roll over, the tax deferred earnings of the traditional IRA that is being rolled over will be fully taxed at that time. However, there will be no tax paid when withdrawls are ultimately made.

04-06-2008, 01:25 PM
The Roth IRA is a prime example of government greed. They had rather tax the 4k contribution now rather than wait until you retire, when they could receive much more from earnings.

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