taxes on investment withdrawals

[rigz]

kind of a newbie question (since im still an investing rookie) but are you only taxed on your earnings on investments and not the contributions you have added throughout the years?

example: over 20 years, you add $10,000 per year of your own money for a total of $200,000

that investment grows to $300,000

and then you start to withdraw - are you taxed on all $300,000 or just the $100,000 you made?

[Chris Leese]

If it is a tax deferred account such as 401k or traditional IRA (you contributed with pre-tax dollars), the full amount would be taxable when you withdraw.

[bjl584]

It depends what type of investment vehicle you are investing in. What type of account do you have? 401K? Roth IRA? Taxable brokerage account?

[rigz]

I have a few (these are at vanguard)

1) my Roth - pretty sure this is all tax free when I withdraw

2) a SEP Ira - I think is tax deferred so all will be taxed?

3) another investment account - I just keep adding money to this one (without any tax benefits as far as I know). This is the one I am primarily asking about.

4) my wife also has a tsp - don't know if this is tax deferred or grows tax free?

[disneysteve]

I have a few (these are at vanguard)

1) my Roth - pretty sure this is all tax free when I withdraw

2) a SEP Ira - I think is tax deferred so all will be taxed?

3) another investment account - I just keep adding money to this one (without any tax benefits as far as I know). This is the one I am primarily asking about.

4) my wife also has a tsp - don't know if this is tax deferred or grows tax free?

The Roth is tax free.

The SEP is taxed on the earnings. You fund that with post-tax dollars so contributions have already been taxed.

The taxable investment account is also taxed on the earnings since you are funding it with post-tax dollars.

Not sure about TSPs.

[rigz]

I thought the sep reduces my current tax liabilities?

[MonkeyMama]

I thought the sep reduces my current tax liabilities?

You are correct.

Both the TSP and the SEP will be fully taxed upon withdrawal.

Your regular taxable investments will only be taxed on the earnings. That's basically how it works, but the tax-advantaged accounts all have different rules.

[Petunia 100]

Keep in mind that in your taxable account, you are going to pay tax on dividends as you go along. If you own mutual funds, you can have taxable gains even if you haven't sold any shares. (The fund may be selling securities. Any gains are passed along to the shareholders).

[Like2Plan]

4) my wife also has a tsp - don't know if this is tax deferred or grows tax free?

This depends on if she is invested in the (relatively new) Roth option or not. If she gets a match, the match is traditional

If you are a FERS employee, your agency’s contributions
also go into your traditional balance. This
money grows in your account tax-deferred, but when
you withdraw your money, you pay taxes on both the
contributions and their earnings.

Link to TSP website:

Roth (after-tax) contributions are taken out of your
paycheck after your income is taxed. When you withdraw
funds from your Roth balance, you will receive
your Roth contributions tax-free, since you already paid
taxes on these contributions. In addition, you will not
have to pay taxes on the earnings, as long as 5 years
have passed since January 1 of the calendar year
when you made your first Roth TSP contribution
(known as the 5-year rule) AND you are at least age
59 ½, permanently disabled (or deceased). If you satisfy
these Internal Revenue Code (IRC) requirements,
your earnings will be considered “qualified,” and you
will not pay any taxes on them at withdrawal.

Traditional and Roth balances. If you make an election
to choose Roth contributions, your account will
then be made up of two separate balances—traditional
and Roth. These two “pots” of money will keep your
contributions and any money you transfer into (or out
of) your TSP account separate for tax purposes, but any
loans, withdrawals, and interfund transfers you make
will include a proportional amount from each balance.
You will not be able to take out, borrow from, or change
the investment of, just one pot of money.