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Finance Taxable Icome Question

Old 11-24-2016, 12:27 PM
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Hi Everyone and Happy Thanksgiving.

Here is my situation.
I have an account with Morgan Stanley in California.
When the wife and I were younger we started a direct withdraw to fund Roth Ira on a monthly schedule. Our income increased to the point that we could not fund the Ira any longer.

We kept the automatic withdraw from the checking to MS. We would fund purchases every now and then as the account built up funds.

Our advisor retired and we have new advisor that is a POS.

I want to take the remaining cash out of the account.
Question: Is this withdraw a taxable event or Capital Gain?
Question 2. Is this considered a long or short term Capital Gain?

Any other comments is appreciated.

Bob

Last edited by sharkwaters; 11-24-2016 at 12:29 PM. Reason: grammer
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Old 11-24-2016, 12:30 PM
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Not enough info. The transfer from your checking account to your Morgan Stanley account is not a taxable event. Neither is funding the IRA. Since you stopped funding the IRA, but continued the transfers to MS, what did you do with the money going to MS? What was it invested in outside the IRA?

The only taxable events here will be selling the investments in the MS account to convert to cash. At that point, it'll depend on what they were invested in, and for how long.

Or you might be able to do an in-kind transfer of those assets from MS to a different brokerage. Maybe.
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Old 11-24-2016, 01:43 PM
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Thank you for reading and your input.
The cash is parked in a cash account earning 0.25 interest.

Basically, after I stopped funding the IRA, the money sits in a cash account and is not earning anything really.

What I do not want to happen, is take the cash out and have it added to my taxable income and then pay state and federal taxes on money that never earned a penny. That is a horrible event.
I also want to move the entire investment from MS to another brokerage. I asked how I could switch advisors and MS said I could not. I'm not sure how they operate, but it is BS after the original broker retired.
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Old 11-24-2016, 01:52 PM
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You can withdraw up to what you've put in tax/penalty free...taxes/penalties come into play on gains earned.
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Old 11-24-2016, 01:55 PM
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Ok, so you actually have two accounts at MS. One is the IRA, another is the cash account. You should have been getting a 1099 for the interest earned on that cash account. That's all after-tax money, so you can move it to another broker anytime, no taxable event at all.

If you want to move the IRA, contact the broker you want to move it to and ask for their assistance in transferring it. If it's done broker to broker there's no taxable event either. Do NOT cash it out at MS directly.

I recommend Vanguard or Fidelity if you're going to manage the account yourself. Fidelity has local offices, Vanguard does not.
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Old 11-24-2016, 01:56 PM
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Originally Posted by schoolsout1 View Post
You can withdraw up to what you've put in tax/penalty free...taxes/penalties come into play on gains earned.
If it's an interest bearing cash account, income was declared in the year earned and he's already paid taxes on it.
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Old 11-24-2016, 01:57 PM
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The funds that went into the IRA would be taxable with the possibility of a penalty. The additional funds, if liquidated would be short or long depending on how long you owned the security. Less tgan 1 year is short term. Just transfer the funds, intact, to another company.
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Old 11-24-2016, 02:24 PM
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Originally Posted by FlyingDiver View Post
If it's an interest bearing cash account, income was declared in the year earned and he's already paid taxes on it.
Yes, Roth IRA plans use post-tax income (already zapped by the tax man) to invest. The amount you put in (contribution) would not be penalized. Anything above and beyond would be subject to whatever penalties/taxes for the guy's situation.
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Old 11-24-2016, 02:26 PM
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Originally Posted by schoolsout1 View Post
Yes, Roth IRA plans use post-tax income (already zapped by the tax man) to invest. The amount you put in (contribution) would not be penalized. Anything above and beyond would be subject to whatever penalties/taxes for the guy's situation.
He doesn't want to do a withdrawal. He wants to do a transfer. No taxable event for a transfer, if done correctly (custodian to custodian).
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Old 11-24-2016, 02:28 PM
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Originally Posted by FlyingDiver View Post
He doesn't want to do a withdrawal. He wants to do a transfer. No taxable event for a transfer, if done correctly (custodian to custodian).
Damn...I was thinking he wanted to withdraw it. Misread that one.... Yea, make sure your transfer is custodian to custodian (never in your possession) and you will be good to go.
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Old 11-24-2016, 03:23 PM
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Originally Posted by sharkwaters View Post
Hi Everyone and Happy Thanksgiving.

Here is my situation.
I have an account with Morgan Stanley in California.
When the wife and I were younger we started a direct withdraw to fund Roth Ira on a monthly schedule. Our income increased to the point that we could not fund the Ira any longer.

We kept the automatic withdraw from the checking to MS. We would fund purchases every now and then as the account built up funds.

Our advisor retired and we have new advisor that is a POS.

I want to take the remaining cash out of the account.
Question: Is this withdraw a taxable event or Capital Gain?
Question 2. Is this considered a long or short term Capital Gain?

Any other comments is appreciated.

Bob
Roth Ira is done with money you payed tax on already.

money that you put into SM after your income became to high to go into a Roth still went into SM after taxes, so any money you put in has had the taxes payed and you should have been paying taxes on the small amount of income it made every year.

Here is a little quote from Roth Iras but it should not have much to do with the cash in the SM account if it never went into the Roth

Although there is no up-front tax deduction for Roth IRA contributions as there is with a traditional IRA, Roth distributions are tax-free when you follow the rules. And because every penny you stash in a Roth IRA is your money—not a tax-subsidized gift from Uncle Sam—you can tap your contributions (but not your earnings) any time tax-free and penalty-free.
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Old 11-24-2016, 03:37 PM
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Originally Posted by sharkwaters View Post
Thank you for reading and your input.
The cash is parked in a cash account earning 0.25 interest.

Basically, after I stopped funding the IRA, the money sits in a cash account and is not earning anything really.

What I do not want to happen, is take the cash out and have it added to my taxable income and then pay state and federal taxes on money that never earned a penny. That is a horrible event.
I also want to move the entire investment from MS to another brokerage. I asked how I could switch advisors and MS said I could not. I'm not sure how they operate, but it is BS after the original broker retired.

I sure understand why you would want to change from MS. Too bad that their customer service didn't work better for you. I have had a very pleasant experience with Vanguard.
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Old 11-24-2016, 03:44 PM
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Did either of the Morgan Stanley advisors say you could contribute to a non-deductible IRA every year and then immediately convert that to a Roth IRA? It's a legal way that a higher wage earner can still put money into a Roth and I did it for years. Tax consequences on your IRA contributions are the same as the consequences for a direct Roth contribution.
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Old 11-24-2016, 04:27 PM
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A Roth is after-tax. Withdrawals are not taxed. You paid the tax before you deposited.

There are no capital gains to consider.

From Rothira.com:

An investor can withdraw his or her contributions to a Roth IRA at any time without tax or penalty. But, that is not the same case for any earnings or interest that you have earned on your Roth IRA investment. In order to withdraw your earnings from a Roth IRA tax and penalty free, not only must you be over 59 ˝ years-old but your initial contributions must also have been made to your Roth IRA five years before the date when you start withdrawing funds. If you did not start contributing in your Roth IRA five years before your withdrawal, your earnings would not be considered a qualified distribution from your Roth IRA because of its violation of the five year rule.
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Old 11-24-2016, 07:40 PM
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my head hurts reading this. I'm so glad I have social screwitity
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Old 11-25-2016, 04:22 AM
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Originally Posted by sharkwaters View Post
last edited by sharkwaters; yesterday at 03:29 pm. Reason: grammar
fify

If the $ is held in cash and a post-tax account you may have already paid tax on it so the disbursement sounds like it would be tax free. How were the other monthly disbursements treated? Most likely at some point you paid capital gains on transactions where you sold stock or whatever investment $ was in and that was the taxable event for either gain or loss, not the actual removal of $ from the account.

Have you talked to your accountant?
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Old 11-25-2016, 05:38 AM
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You should have been receiving a 1099 from any non-IRA accounts cash account so you would have already paid taxes on the gains plus since it was non-IRA your investments were after tax too. So you should not owe tax on anything no matter when you take it out. If you were only earning .25% I would have to wonder what their fees did to your money.

There may be some taxes due on the non-cash part of the non-IRA based on growth but it should be long term capital gains for the most part with no penalty. You should have also received a 1099 on that and you may have paid some tax depending on how and when the trades were done.

Gather up all of the 1099's for the entire period and go talk to your CPA. And find a better CFP.

One more free piece of free advice; what until next tax year to do any of this; your tax rates may be changing.
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Old 11-26-2016, 03:55 PM
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Hi Everyone that posted. Too busy with Baseball tournament to get back to this.
1- I only want to remove the Cash that was not invested. I will leave the Roth accounts and the stock accounts as is. My son is turning 16 soon and I need some cash to but a car for his use.
1- The MS account reps will never call me, even for an annual check up on investment status. I hold mostly mutual funds and I'm a buy and hold investor. I guess there is no money to be made on commissions.
3- I have paid taxes on the annual earnings each year and my tax advisor is very good.
4- I do plan to wait for President Trump to make changes in the tax code.

Thank you all the advice. THT is the best.

Happy, Post, Thanksgiving Football.
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Old 11-26-2016, 04:19 PM
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If you paid taxes on the money you are pulling out and the interest it made then there is no reason to wait to see what trump does you can get it out without any tax problems
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Old 11-27-2016, 09:40 AM
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Originally Posted by 99yam40 View Post
If you paid taxes on the money you are pulling out and the interest it made then there is no reason to wait to see what trump does you can get it out without any tax problems
This is right; like I said in #17; you have already paid taxes on the interest earned so no taxes are due on the non-IRA cash portion of your investments. The new tax laws (if and when) might effect your stock, bonds and mutual fund growth but have no bearing on your cash.
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