| What to do with my investment income? |
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spartan91
First Time Poster
Cash: $ 0.25
Posts: 1
Joined: 13 Oct 2010
Location: MI
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| What to do with my investment income? |
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I would like to start retirement accounts for my wife and I and to fund them, I am selling 10k worth of shares in a company I invested in. I would like to know the smartest way to handle it. After researching a bit these seem to be my options:
My first choice is Roth IRAs but then I have to pay taxes on it correct? Is there a way that these contributions would not count against taxable income?
Second option: Put it in Traditional IRAs I wouldn't pay taxes but then it is not as smart long term. No taxes here until I withdraw, right?
Third option: I have a 401k available at my job, but I have not started it yet. I have enough cash on hand to direct all my remaining paychecks for the year into this account, then contribute the remaining amount to max out the IRAs and just take the 10k as investment income (if there is not way around the taxes). In this case, I would just roll over the 401k to a Roth later on.
Do I have other options? What do you guys recommend?
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Wed Oct 13, 2010 5:05 pm |
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coaster
Senior Advisor
Cash: $ 1357.80
Posts: 6686
Joined: 11 Oct 2005
Location: Wisconsin
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1) Roth IRA: you pay capital gain taxes on your gain when you sell your shares; you invest the net in a Roth and pay no more taxes on the principal or the gain. ever.
2) Traditional IRA: you pay no taxes now, but you pay ordinary income taxes on the distributions when you take them.
3) You didn't mention what the investment was that you're selling. If it's not a qualified plan, you probably can't roll it into your new 401(k).
The differences between options #1 and #2 are both more and less than meets the eye. First of all, your assumption that #1 is the smart thing to do cannot be assumed because: you don't know what the tax rates will be when you take the money out; second: you don't know what compounded gain you miss out on by paying tax now.
I think that the whole thing about making a decision on the basis of taxes is erroneous. The decision to invest should be on placing the money when it earns the maximum gain vs. the least risk. That means the choice of investment itself is more important than the choice of investment account or account wrapper.
If your present investment has done well, and the company has better than average prospects for continued growth and profits, and if you believe in the management, etc etc etc .... why not avoid the whole tax issue by just leaving it there to continue growing? Then you also avoid the uncertainty of a new investment. Just a thought.... 
~Tim~
Eye Candy : Why Whimsy
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Thu Oct 14, 2010 5:57 am |
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harrywinston
Member
Cash: $ 2.00
Posts: 10
Joined: 24 May 2011
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Investment income, which is the time-came back is a good idea. Capital gains are not great retirement you count. Load up your own stocks and Bonds that you pay for them. Hope for the market price increases, retirement is a way to bad. Let this site, a secure road to the future financial perspective.
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Tue May 31, 2011 12:36 pm |
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