A hike in Capital Gains tax rate won’t affect IRA or 401K savings withdrawal tax rates or your total $ in savings

senior

photo from Daily Kos

While many progressives are seeking to hike an historically very low Capital Gains Tax rate of 15% to 23.8% (compared to regular personal income tax rates), some of the elite, who will pay more under such a change, are leaving public bread crumbs that an increase will hurt average income seniors and reduce their retirement accounts.

These greedy “geniuses” are betting that most consumers don’t know the rules for withdrawing funds from these tax exempt instruments. Many IRA and 401K owners unfortunately believe that their current equity in mutual funds will benefit from a lower capital gains tax when they retire. Not true!

All sheltered retirement money withdrawn will be taxed as regular income.  Even if capital gains tax was 90%, IRA withdrawals would still be taxed at regular rates of 15%, 25%, etc.

Regardless of the capital gains rate, you might also be subject to additional income tax on your Social Security benefits, despite whether withdrawals were from capital gains funds, dividends, interest, or just sitting there as cash.

Suggesting a low capital gains tax is an extra tax boon to saving for retirement is gross misinformation, unless the funds are outside of an IRA or 401K.

As part of 2015 tax reform, Congress should also examine the unfairness to any retired couple, who report income more than 32K (a limit not increased in 30 years). These middle class retirees are taxed on the next dollars at 50% more than taxpayers – not retired – up to as much as 100% of their Social Security benefits.

There is much talk about the very rich suffering from a possible rise in capital gains tax, but no kindly attention to needs of middle class retirees – who still, oddly, vote almost as a block for the GOP, which rarely seems to have their interests at heart.

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