Question about Obama's taxation of IRA's

[stpalmer]

My friend won't vote for Obama because her parents have their entire retirement savings in an IRA (no soc. sec. because they owned their own restaurant and never paid into ss) and she says Obama will tax their spending on their IRA, which would break them financially. Is this true? Will he tax their retirement money? She says she found it on Obama's website, but I can't find any reference to IRA's or taxing them. Do any of you know?

[FreakinDJ]

1. Any time you use the money out of it - its Taxed

under the current system

Obama says "No one over 65 yrs old making less then $50K per yr will be taxed

None , Nada, Zip!!!!

[lookbothways]

10. what this means

Taxable income for most 65+ citizens is under $50,000
This number does not take into account real wealth

This is why millionaires get SS checks

[mrreowwr_kittty]

2. Unless they have a Roth IRA (tax free deductions) their deductions are already taxed

They're taxed at the ordinary income rate. The money is tax deferred while it's in the account but believe you me, taxes will be paid on it. The GOP has been deliberately conflating IRAs with investments that create capital gains. They'll say things like: "Obama wants to raise capital gains taxes, which will affect MILLIONS of Americans with retirement accounts!!1!" They lead people to think their IRAs and 401ks will be affected. It's not true.

[lookbothways]

11. Only for Trd. IRA

This is only the case in Traditional IRA's which have previously allowed for a deduction of the amounts.
ROTH IRA’s are taxed on the front end.

Never the less Carter raised the Capital gains rate and it flopped the economy, people do not realize how taxes work- so they get spooked. That is why they pay tax pro’s, since everyone can't spend all their time working with taxes.

The real issue with the GOP is that they insist Obama will introduce capital gains tax to the GROWTH of IRA’s. I don't know how they expect him to do it, since the move would violate current tax law.

[Lebam in LA]

3. Have them use the Tax Calculator

http://alchemytoday.com/obamataxcut/

[lookbothways]

14. Less government is better government

I understand what you are thinking, but please don't count on that calculator or financial planning. All tax law has to go through Congress. And either we get the full cut AND spending is reduced drastically (I.E. less foreign aid than we are promised) OR the deficit is increased. We just can't get away with having it all.
Please keep in mind (no matter how dumb the other guy sounds- that isn’t the point) Obama in fact hasn’t been near enough to the Whitehouse for enough time to actually know what he might can deliver.
It is a bid for the presidency- so the GOP doesn’t win. NOT a real guarantee of better times, no one can truly deliver on all the promises they make in a political campaign.
We have to keep the president and Gov. out of our financial lives- or next time a Bush clone will have the same power on your pocket as you gave our guy. (a little of topic, but I have an itch to talk business today)

[Demobrat]

4. All IRA withdrawals are taxed as regular income.

I hope they know that, because if they're not factoring taxes into their planning they're in for a shock that has nothing to do with Obama.

[tsuki]

5. This is what I cannot understand about people. I have a business,

an S-Corp. I pay myself a salary, and take out payroll taxes.

I have a simple IRA retirement package. The money that I put into the simple IRA is not taxed. The interest that it accrues is not taxed. When I retire, it will be taxed as income, NOT capital gains. The idea behind this is that you will be in a lower tax bracket and not pay as much income tax.

I get these emails all the time from people who believe that they will pay capital gains on their IRA and 401K. No. It will be taxed as income according to my financial planner who should know about these matters.

Seeing how the stock market is going, I am glad that I paid into SS.

[A HERETIC I AM]

6. Your Financial Planner is spot on correct.

The non taxation of gains realized inside of IRA's, 401(K)'s 403(B)'s etc. is one of the biggest why they were set up in the first place.

[lookbothways]

12. ok

True for a T.IRA, but I plan to keep working at age 59 1/2. Still no cap gains though

[scarface2004]

7. ira withdrawals are taxed as regular income

have been forever. just because you own your own restaurant (self employment?) doesn t mean you aren t entitled to ss, as long as you paid your se tax as a sole proprietor as is required. they couldn t have deducted an ira unless they had a certain amount of 'earned income' so we have to assume they were subject to se tax. your friend is full of shit!

[stpalmer]

8. Thank you!

I suspected as much---she has now told me she thinks Obama is the antichrist....and she doesn't like his name. I guess the 401K excuse was just a cover for ignorance.

[lookbothways]

13. ???????

Did you already know about IRA's? I thought you needed tax advice within the political discussion—apologies, I didn’t mean to insult your knowledge.

[lookbothways]

9. how IRA's and SS is actually taxed

Taxes don’t work like that,
First, they likely paid Social Security, at a 14% rate for self employed individuals. Second, investing (not spending, we do not spend for an investment) in a Roth IRA is taxable already. It is the traditional IRA with is deductible. Now distributions on a ROTH are not taxable, where as the traditional IRA is taxed at distribution. Follow?
Second, don’t worry. Regardless of what Obama says, he knows that the AARP (a campaign contributor) will never let him tax IRA growth- even if he actually wanted to. If he did something that stupid he wouldn’t be re-elected.
What I hope he really doesn’t do is increase capital gains tax. Carter did this and we had a whopper of a backlash in the economy. (Well intentioned ignorance is granted, but it was a hooverish mistake)
The bottom line is that we (as a capitalist system) know how to put or money to better use than congress. Obama has to many things on his plate for presidency that he can actually do something about.(war, foreign policy, energy) If he tries to get the government to take a larger control over the economy, well let’s just say that there won’t be another 700 billion laying around to fix it. Therefore, I think he will ultimately leave it well enough alone.

[Anna Lee]

16. The original post was a non-SS situation.

I don't understand the original post because restaurant owners are not exempt from paying into SS. In fact as an owner they should have payed both the employer and employee parts on themselves.

But there are some state workers that didn't pay into SS. Their deferred withdrawals are taxed at ordinary income tax rates so the only way for them to be helped or harmed by a change in taxes is if the change is to increase or decrease their INCOME tax rates. If the person was withdrawing more than $250,000 a year, they would pay more taxes under Obama but this would not be a sales tax as the original post suggested. I have heard nothing about any candidate introducing a sales tax on retire spending of deferred savings withdrawals. In fact, it sounds rather silly to me.

Capital gains rates do not play any role in either deferred or Roth retirement savings withdrawals. A change in capital gains has no effect on the taxes owed upon withdrawal from these accounts.

[Anna Lee]

15. The way it currently works for retired people is a bit complex.

http://www.socialsecurity.gov/planners/taxes.htm

"If you:

file a federal tax return as an "individual" and your combined income is
between $25,000 and $34,000, you may have to pay income tax on 50 percent of your benefits.
more than $34,000, up to 85 percent of your benefits may be taxable.

file a joint return, and you and your spouse have a combined income that is
between $32,000 and $44,000, you may have to pay income tax on 50 percent of your benefits
more than $44,000, up to 85 percent of your benefits may be taxable."

That is pretty straight forward. Now for the deferred retirement savings. Let's say that you are married filing jointly with an income of $44000 and have a deferred retirement account. You have an emergency and need to draw from your deferred savings. You will pay tax at income tax rates on the withdrawn money BUT you have exceeded the 50% SS tax bracket so you will also need to withdraw enough for both the income tax on the TOTAL withdrawal and the added tax on the 15% extra of the SS tax. But the extra withdrawn for the extra SS tax is also taxed at ordinary income tax rates so the excess withdrawal needed for the SS tax is greater than the SS tax. The same will happen if you are under the $34,000 limit if you need extra to pay the 50% level taxes.

The way it changes under the candidate's plans for a retiree are surprising.

Now, I went to the calculator and the more complex calculator suggested on the results page. It looks to me like retirees don't get the tax break that workers get. Run the simple calculator at a few AGI's assuming you are a worker and then again assuming you are a retiree at the same income. In fact the calculators show that some retirees are much better under the McCain plan. Is the retiree part of the calculator correct?