Join Early Retirement Today
Thread Tools Search this Thread Display Modes
Cap Gains Rate vs Effective Rate
Old 03-06-2021, 11:41 AM   #1
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Join Date: Mar 2011
Posts: 6,292
Cap Gains Rate vs Effective Rate

I think I know the answer here but want to double check. "Numbers is hard for me"

All things being equal:
If one's after tax cap gains are taxed at 15% and one's effective tax rate is 15% does that mean that if I were to withdraw from my IRA or my after tax account it would make no difference?

Or are all things unequal in that the mix of IRA/after tax skews the tax profile even while maintaining a net 15% effective rate?
Living well is the best revenge!
Retired @ 52 in 2005
marko is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 03-06-2021, 11:51 AM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 28,992
I don't think so. Money that you withdraw from your IRA is likely all ordinary income and would be taxed at ordinary rates of 0% (if income before tIRA withdrawals were less than the standard deduction), 10%, 12%, 22%, etc. If you were already in the 12% tax bracket and the tIRA withdrawal bridged the 12% and 22% tax brackets then it is possible that the marginal rate might be 15%, but it would be rare.

LTCG rates are generally 15%, but 0% for lower income levels and 20% or more for really high income levels.

I think your best bet is to use something like the dinkytown tax calculator to but in your base case and then look at the increase in tax in relation to $x of tIRA withdrawals or the increase in tax in relation to $x of added LTCG.
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 65/35/0 AA TBD
pb4uski is online now   Reply With Quote
Old 03-06-2021, 11:58 AM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
Join Date: Jun 2007
Posts: 10,837
I'm going with B, all things unequal.

The main thing is, from your after tax account you only pay tax on the gains. If you need $10K, and have $10K in a fund with $5K of capital gains, you only pay capital gains tax on $5K. On an IRA withdrawal you pay ordinary income taxes on the full $10K. It's less of a hit to take from your after tax account unless your basis is $0.

On the other hand, if you're at all concerned with leaving something to heirs, your IRA will have to be drained by you or them at some point. But as the rules are today (subject to change), they would get stepped up basis on holdings in your after tax account, so it could be better to just hold onto those.

If charitable giving is a factor, consider whether it's better to do QCDs from your tIRA and giving appreciated assets. The latter relies on itemizing deductions.

Watch for any additional hits caused by taking more income, such as IRMAA, or causing more of your SS or QDivs/LTCGs to be taxed. That might favor taking from your taxable account to limit income.

There is no 15% bracket right now for regular income. I guess by "effective tax rate" you mean overall tax rate? That doesn't cover what the additional $10K (or whatever amount) you are taking, so I suggest using the marginal rate.

For the most part, it's probably not that much of a difference. But they aren't equal.
RunningBum is offline   Reply With Quote
Old 03-06-2021, 04:03 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 28,850
Often very different. The tax calcs are quite different.
Retired since summer 1999.
audreyh1 is online now   Reply With Quote

Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off

Similar Threads
Thread Thread Starter Forum Replies Last Post
capital gains: is there an effective tax rate? mrfeh FIRE and Money 33 07-23-2013 07:51 PM
Shielding Gains from Higher Cap Gain Rate in 2011? grumpy FIRE and Money 6 09-09-2010 10:45 AM
Tax Questions: 1. Cap Gains 2. Tax Rate TromboneAl FIRE and Money 2 12-12-2007 09:49 AM
Mutual fund: better to reinvest cap gains/dividend soupcxan FIRE and Money 4 11-08-2004 01:00 PM
Confused about cap gains Cal Other topics 3 10-04-2004 07:44 PM

» Quick Links

All times are GMT -6. The time now is 12:20 PM.
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2021, vBulletin Solutions, Inc.