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Are Capital Gains From Stock Trades Inside an IRA Taxable? - YouTube
Channel: Toby Mathis Esq. | Tax & Asset Protection
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Are capital gains
from stocks traded inside an IRA taxable
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at the end of the year?
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I get this question. Yeah.
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It's kind of neat that we get those
because,
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you know, people are thinking
they're worried about capital gains,
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but they're forgetting
it's in a retirement account.
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So what happens?
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Nothing. Exactly right.
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Because if your stock can go up, up
about Bitcoin, you know, two years ago.
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80,000.
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All that gain, if it was
in your retirement plan, there's no tax
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until you retire you you know,
even if you sell it,
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there is no get a gross tax free
until you distribute it to yourself.
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That's
where the hammer comes down to taxes.
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So not a problem here at all.
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From gains as long as you haven't
distributed anything out of your plan.
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Yeah.
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Realize capital gains mean nothing inside
of an IRA, any kind of cure.
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It also means nothing inside a nonprofit
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Now, the one disadvantage
and it's just a slight disadvantage is
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capital gains, too.
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Personally, after a long term
capital gains get taxed at a much lower
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percentage.
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When you pull all these capital gains
out of your IRA, you're pulling
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at your regular tax rate
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not the lower capital gains rate. So.
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And it's kind of a tradeoff.
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And it is or is that that's as far as tax
planning, that's always a big issue.
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Do I think rates are going to be higher
when I retire or lower?
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Toby gets here without I know all the time
I might because I see it on,
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you know, tax wise and all that.
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And here with Jeff on Tax Tuesday,
you sure do a Roth or whatever
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you're all you're
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always playing that game of do I think
taxes are going to be higher or not?
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And we don't have that crystal ball
but I believe you know Tobey often talks
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about he's done a lot of research
and tracked a lot of numbers.
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Often, you know, if you're
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if you're older, there's probably
no use to going into the Roth
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you know, if you're trying to do a
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conversion
into a Roth, it's probably not worth it
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because you have to make that back up,
that amount of tax you're paying.
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So just some thoughts,
but directly to the question,
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you just have gains and you haven't taken
anything out of your IRA that all grows
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tax free until you take it out
later on in retirement.
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So what is the one time that I'm going
to have to pay tax on my IRA?
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Yeah, Oh, well, okay.
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And if we do different types of investing
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where maybe we invest in something,
we talk about capital gains here.
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What if it's something that didn't create
capital gains,
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whether Crandall ordinary active
income like a real business,
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will take Tobey's famous pizza shop.
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If you invest in something like that
in active business,
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you could have
what's called unrelated business,
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taxable income, or you bet, sometimes that
can be turned into your own.
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There
you're going to get hit with heavy taxes.
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And it is the brackets
aren't much higher than regular.
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It's just that they rise really fast.
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So why like $10,000 of income,
you're up 40% tax bracket or something.
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And it's critical.
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And the whole idea is to punish those
who invest in that kind of thing
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because the IRS needs a level playing
field or Congress wants a level playing
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field between Tobey's pizza shop
that's out in the private world
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and one that's someone is investing in one
through their retirement plan.
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So I have a couple investments
in my portfolio,
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not my retirement portfolio,
my regular portfolio.
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Sunoco Limited Partnership,
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all-American Pipeline
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and a couple others.
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These are almost all publicly
traded partnerships,
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and they usually have limited
partnership in their name.
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No, I'm
not given investment advice on that.
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They tend to pay pretty decent dividends
because of the nature of the business.
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But they also generate
exactly what you said.
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They generate ordinary income, sometimes
ordinary losses, which is not a big deal.
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But if I have this will take Sunoco
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and my trading to my IRA account,
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and it's generating ordinary income
because these limited partnerships
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are now once, even though they're traded
on the stock exchange,
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I have to report that ordinary income
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as unrelated business income
which gets taxed.
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What's a percentage on that?
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Well, again, it is a bracketed,
but it grows really fast.
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So it it's on, I think what we call it
frustrates
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and I don't know the exact brackets,
but I believe the highest is 40% or 37%.
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So like that it's up there.
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But again, it takes very little time
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to get up there, like $10,000, 15,000
or something like that, growth very fast.
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So my advice is
if you have anything in your
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retirement accounts
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that say limit a partnership,
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I know you bought it on the New York Stock
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Exchange or whatever, Ken or Morgan's
another one
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you may want to dump those puppies.
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Yeah,
unless they're making a ton of money,
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you know, if you're making a ton of money
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and getting tax for it
while you're still gaining.
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Yes. You
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because I don't I don't think
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people even realize what they bought
until they've already bought them off.
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And I got to say that
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So, yeah,
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that's the one time of
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you may have to pay tax out of your IRA.
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The other time is the qualified dude
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the interest one
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of the financing one.
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Yeah, yeah, yeah.
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Unrelated debt financed income,
which is really considered
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a subset of you bets,
but it's directly related
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related to when you have debt involved
when I go into that.
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Yeah.
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From what I've seen, it's where
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I disagree.
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If you think I'm wrong,
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I'm getting income from this entity
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that was paid for
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by financing.
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So they disturbed they went out
and got a loan for the $100 million
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and then paid out distributions
to their partners or shareholders.
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With that money,
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that income is becomes taxable.
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Yeah.
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The amount it's a ratio between the amount
for the project that was financed
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with cash from the investment
and how much was from debt.
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And you have this ratio and the amount
let's say you get $100 of income
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and that's 50.
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Well we'll say it's 60, 40, 60.
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Cash, 40 debt.
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Well then 40% of that income or $40
will be subject to this
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you dfi which is that same
super accelerating tax bracket with $40
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you're already taxed at some crazy amount
like 25% or something like
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that takes a little little
time to get up there.
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And so
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I believe if you
look through and you do enough research
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now I don't know why anybody would
but I think,
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I think you DFI
is really just a subset of you bet.
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It's just that you bet
is the most popular one.
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You don't hear as much about the finance
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that happens a lot,
especially with clients in our realm
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who might be going into investments
in where there are real estate,
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where they've taken on a lot of debt
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to build maybe a syndication
or something like that.
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And they did it with an IRA,
they did investment.
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There could be an issue
something to be aware of,
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and you'd have only effects IRAs,
not for one case, correct?
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Miocene is that you can get in these
very narrow circuits
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where you might get hit with it in
and like say a solar foreign K,
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but it's far more unlikely
that you run in the you DFI in there.
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Just different rules different kind of
thing going on with solar for one day.
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But the IRA is the one
that really gets hammered with it.
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Typically if you're investing
and your typical
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common stock preferred stock
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bonds, if
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you're doin options of all of that's
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going to be nontaxable while in the IRA
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So all that typical trading stuff
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it's just a few of the or calm
the weird items
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that can get you into a bit of trouble
Yeah.
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So again going all the way back around
capital gains typically no problem
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in in your IRA we want those
they just grow and grow and grow tax free
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unless you get into some kind of
investment that has unrelated debt
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related that taxable income
or unrelated debt financed income
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or you might get some tax on
it and at a very high rate.
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