If any of those profits are then distributed as dividends to the shareholders, those individuals must also
pay a tax on the money when they file their personal tax returns.
Under scenario number two, we
already paid taxes on the money before the investments were purchased, so we will be subject to the lower 15 % long term capital gains tax rate.
Traditional IRAs offer the benefit of tax deferred growth since contributions are generally made with before - tax dollars and you don't
pay taxes on that money until you take it out.
While investors can do installment sales, and
only pay taxes on the money as they receive it, a dealer has to pay taxes upfront on any income due from an installment sale.
In the calculations for taking the penalty, you discuss the penalty of 10 % as a con; but you are leaving out the calculation
for paying taxes on that money as well.
Since you've
already paid tax on the money you're investing for your future, when that future finally arrives you can withdraw the funds from your account without paying any additional taxes.
Usually, you must
pay taxes on money as you realize the income, whether that's interest payments each year or profits you make from selling stock.
You don't get an upfront tax deduction on the money you put into a Roth, but in exchange, you'll never have to
pay tax on that money if you meet certain legal requirements.
So you got your $ 3100 in «free» money, then lost $ 930 in penalties and
then paid taxes on the money to the tune of 28 % plus state and local taxes on the $ 3100.
It acts like a prison, keeping your money away from your control until some magical day somewhere out there, when you can finally access your own money,
after paying your taxes on that money.
There are tax forms that can assist consumers on this subject that a licensed tax preparer can help on, to evade having to
pay taxes on the money saved if a person is insolvent.
Although you don't have to
pay taxes on the money contributed to a 403 (b) or Regular IRA now, you will have to pay tax on it, as well as the accumulated returns, when you receive the money after retirement.
We will have to
pay taxes on this money eventually, but the hope is that in the meantime we reduce our taxable income early on and that money grows a lot before we have to eventually give our share in taxes.
As retirees you don't have any employment income to build additional RRSP contribution room, so you risk having to
pay tax on that money twice — when you first earned it and again when you withdraw it from your RRSP or RRIF.
You never
pay tax on the money inside your TFSA, so you can invest in interest - bearing options like bond funds and GICs, or aim for growth in the form of investments like stocks.