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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16576
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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When I turn 59 1/2 I will convert my IRA to a regular brokerage

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When I turn 59 1/2 I will convert my IRA to a regular brokerage account realizing that I will take the 38 1/2% tax hit. If the balance of the account is in appreciable assets and I occasionally withdraw portions after the big tax hit, will the IRS want a cut of the capital gains on every portion withdrawal?

Megan C :

Hello! I am a CPA here to assist you with your tax questions. My goal is to provide you with excellent service today.

Megan C :

How are you today?

Megan C :

Once you transfer the funds from the IRA to the brokerage, it becomes ordinary income the year of the transfer.

Megan C :

After that, if the assets appreciate in value and you sell them, you will have capital gain

Megan C :

You will have to recognize capital gains taxes on those transactions.

Megan C :

You will have income on interest and dividends you receive as well.

Megan C :

So, unfortunately, the answer is "yes" the IRS will want a cut of the capital gains you receive on assets that you sell.

Megan C :

I'm sorry I didn't have better news for you.

Customer:

Is the 38 1/2 % tax hit still a good number?

Megan C :

It depends on your income level and how much you are taking out.

Customer:

Lets say my income level is $175,000.00 and I am withdrawing my entire IRA for transfer to a regular brokerage account and the value is say one million.

Megan C :

Yes, the figure would be correct. Your tax would be about 39% on 1 million

Customer:

What if I transfer the entire one million in cash, so they take 390,000.00 how do they tax the balance if I hold the cash outside of the banking system?

Megan C :

If you hold the cash, you only have to pay tax on any income generated by that cash - so if you had interest, you would be taxed on that.

Megan C :

But if you bought stock for $500,000 and sold it for $525,000 you would owe tax on $25,000

Customer:

Thank you Megan, I think you have answered all my questions.

Megan C :

You're welcome. Glad I could help.

Megan C :

If you would, please take a moment to rate my response as "Excellent" so that I may receive credit for assisting you today

Megan C and other Tax Specialists are ready to help you
Thanks, Jim for your positive rating. Please come back and visit me any time you have a tax question that needs answered. It was a pleasure working with you today.