General Question

capet's avatar

US: Will my IRA still be protected from capital gains tax?

Asked by capet (988points) March 30th, 2022

I have a question about IRAs in the US.
Are the following statements (usually) correct? (I’m confident that #1 and #2 are correct, mostly interested in #3.)
1. Capital gains on investments in my IRA receive better-than-usual tax treatment.
2. I cannot deduct my IRA contributions on my taxes if I also have a 401(k) and a high enough income.
3. Even if I meet the conditions in #2 and cannot deduct my IRA contributions, my IRA investments continue to get the favorable tax treatment in #1.

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6 Answers

jca2's avatar

The IRS website will have all the answers.

gondwanalon's avatar

Earnings from a Roth IRA grow tax-free and are not taxed when realized. But that can change.
Traditional IRA capital gains are currently taxed only when they are realized. But that can change too.

LadyMarissa's avatar

When initially set up, the plan was that they money stay in the IRA until you retire. At that point, your tax rate would be significantly lower, so any taxes owed would be at a significantly less percentage than before you retired. As @gondwanalon points out, that is always subject to change!!!

jca2's avatar

Don’t rely on a forum, here it is straight from the source:

Tropical_Willie's avatar

“Funds you invest in an IRA are free of capital gains taxes entirely, although distributions are subject to regular income tax rates when you finally access your IRA.”

So you pay only income tax and no capitals gains.

JLeslie's avatar

Always check with your accountant. We aren’t experts here.

Basically all true what you wrote. @jca2 gave you links to the actual IRS website. Always good to go to the source.

There are differences between Roth IRA’s and Traditional IRA’s.

Yes, your income matters, if it’s too high you can’t get the reduction in income for your taxes in the current year for a traditional IRA.

In both the money grows tax free. When you receive distributions from the traditional account you pay tax. The Roth you don’t pay tax, you pay the tax on the front end.

Regarding the 401K it matters if you max out your 401k.

Side note: you can do an HSA healthcare plan and that money reduces your income no matter how much money you make and you can do it even if you maxed out your 401k. After age 65 you can draw on it for non-medical without penalty and pay normal income tax on the distribution. Info here In some ways it’s better rules than an IRA. Before age 65 you can use the money tax free to pay medical and pharmacy bills.

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