Re: Income tax on investments

From: Rich Carreiro <rlcarr@animato.pn.com>
Subject: Re: Income tax on investments
Date: Wed, 26 Aug 1998 22:26:29 -0400

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>Presuming that I have no income and begin to live off of my investments,
>that all of my investments are long-term, that I am married filing jointly,
>and that my tax bracket is 15%, what will I pay in taxes on $36,000 from my
>tax-deferred withdrawals? And at what tax % rate? 

Tax-deferred monies are treated as ordinary income when withdrawn.
So some of that $36,000 will be taxed at 15% until the point where
it pushes you into the 28% bracket (which point depends on any other
income you have) and the rest of it will be taxed at 28%.

>In comparison, what if that $36,000 comes from after tax investments with a
>basis of say $10,000?

A long-term cap gain of $26,000 will be partially taxed at 10% and partially
taxed at 20%.

Your best bet would be to get copies of the 1997 tax forms and fill them
out as if you were in the position you are describing.  That'll be the
best way of telling you what your taxes would be.

>Another question would be will the tax rate be different on the withdrawal
>of tax-deferred investments if other income pushes the income above the 15%
>rate level?

Ordinary income is taxed at 15% in the 15% bracket, 28% in the 28% bracket,
and so on.  Long-term gains are taxed at 10% in the 10% bracket, 20% otherwise.

You might also want to check out www.fairmark.com, which has one of
the better guides to taxes and investing that I've seen.

Rich Carreiro
rlcarr@animato.pn.com
P5-100/RedHat Linux 4.1



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