LogFAQs > #980076514

BDSMKane posted...

The thing I dont understand about this is why the income tax threshold is so high ($1,000,000) but the investment tax threshold is so low ($400,000). Doesnt that investment tax apply to any 401k or IRA that retirees roll over? A million a year is a lot of money, and Im sure no one here would argue with that being taxed.

But, even if I personally have $0 retirement, $400k in a lifetime of working, saving, and investing doesnt sound like that much; especially with insane inflation. It seems like its specifically designed to punish people for trying to save up for retirement, especially in blue states where annual income is higher. I dont even think retiring in CA would be possible with less than $400k from investments, and then the government takes almost half of it?

I know there are the super rich who would be effected by their routine hundred thousand dollar investments, but adding a clause to give retirees a one time leniency seems like it would be a better way to go. Unless Im misunderstanding something here, then Id appreciate someone trying to politely clear it up.

Edit: I also dont mean this offensively, but Im wondering about a possible age gap. My understanding of retirement has changed drastically in the past two years as family and friends have gotten closer to that point.

Retirement stuff is usually taxed as income, not as capital gains. Capital gains would be from the sale of a stock. You don't pay capital gains when you sell stock in your 401k, you only get taxed when you withdraw it, and it would be income at that point. The tax free capital gains of 401k plans is one of the largest benefits of it compared to a regular brokerage account.

And regardless, you wouldn't pull your whole 401k amount at once. You'd pull out annually, whatever amount you think you'll need.