Talk:Traditional IRA
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tax-neutral?
[edit]The article states:
"Assuming that both the tax deduction and the tax on its reinvestment gains only affect the individual's top tax bracket, the results are tax-neutral."
I don't think that is correct, or I don't understand it (the linked source is not helpful either). Because of compound interest, tax-deducted money that is invested in an IRA will increase substantially until the time of retirement. While it is true that the gains are taxed, they are not taxed at 100%, so the investor will still end up with much more money. Nordostsüdwest (talk) 22:52, 13 October 2024 (UTC)
- A couple of points:
- 1) I believe this section is referring only to whether the contribution's tax refund/reduction is a benefit or not. It is not talking about whether the account in total has benefits and ends up with more money.
- 2) If you read the reference #10 you will see that gains are NOT taxed, ever. The only benefit-factor that everyone always gets is from permanently tax-free profits on after-tax savings. The government benefits from the tax-free profits on their capital funding of the account. The industry/gov't chooses to 'think of' the withdrawal tax as a tax on (the original tax reduction + profits earned).... so profits get taxed at withdrawal. But that is just one possible conceptual model ... and no one has ever provided math showing that model explains the net benefit (vs a taxed account) ... because it doesn't. The model at ref #10 does provide the proof of its conceptual model. Wicki tracking (talk) 12:43, 14 October 2024 (UTC)
- Also, the point you quote about affecting only the top tax-bracket +/or being tax neutral, I agree is bogus. Maybe its point is that you only consider the incremental effect of the account on your personal income (for cont, draws and profits along the way ... so at whatever your top tax bracket would be). I can't explain how that makes it 'tax-neutral'. Wicki tracking (talk) 14:09, 14 October 2024 (UTC)