Tax implications for investments

[becky20fan]

Hi, have a question for my parents. They are in their early 60's and are contemplating taking out about $100K from an ING fund investment - they are concerned about the state of the economy and are trying to decide what to do but feel the ING fund is NOT where they want their money. This is money that a year or two was removed from his 401K into this fund. What are tax implications? Is it considered Capital Gains? Added onto their income for their 2008 tax returns? I think my dad is leaning towards putting it in gold and silver, but they're not completely convinced that is the right decision either. FYI, they are not retired, still working, income probably around $80K a year.

Any thoughts or insight on the tax implications would be great or what they could do to minimize the tax hit, would be great. If they take it out half and half (half in 2008, half in 2009) would that be better?

Thanks!!!

[veritas]

You need to seek

a CPA or EA in your area.

You have raised what may seem to be an easy question which is in fact more complicated than you realize.


For instance is the money in an IRA?

What are they invested in with ING?

Both of the questions above have a subset of questions.

[Uncle Sam]

Hi, have a question for my parents. They are in their early 60's and are contemplating taking out about $100K from an ING fund investment - they are concerned about the state of the economy and are trying to decide what to do but feel the ING fund is NOT where they want their money. This is money that a year or two was removed from his 401K into this fund. What are tax implications? Is it considered Capital Gains? Added onto their income for their 2008 tax returns? I think my dad is leaning towards putting it in gold and silver, but they're not completely convinced that is the right decision either. FYI, they are not retired, still working, income probably around $80K a year.

Any thoughts or insight on the tax implications would be great or what they could do to minimize the tax hit, would be great. If they take it out half and half (half in 2008, half in 2009) would that be better?

Thanks!!!

You haven't told us WHAT TYPE OF ACCOUNT the former 401(k) with ING is.
Is it an IRA Rollover, a personal investment where lump sum tax was paid upon the transfer to a personal account (in other words a 100% distribution).
It makes a difference.
If an IRA - then everything coming out as a distribution is taxable at ordinary income rates. However, if you're going to sell the investments and then reinvest in some other type of investment without having any funds come out of the IRA account, there is no current year tax implication because investment changes in an IRA don't get reported as taxable income.
If personal investment - then you need to consider what the cost basis of the investments in the account are in order to determine the capital gain/loss upon selling everything that's in there that you're selling.

[veritas]

Uncle Sam

gave you a good synopsis for the tax ramifications.

However that aside what happens when the funds which are invested in ING are sold? Will there be surrender charges? Will your parents incur other fees by moving from one fund to another? Are they invested appropriately for their age and risk tolerance? Are they going to sell at a low price and take losses and then return later when prices are higher as many investors do?

[becky20fan]

You haven't told us WHAT TYPE OF ACCOUNT the former 401(k) with ING is.
Is it an IRA Rollover, a personal investment where lump sum tax was paid upon the transfer to a personal account (in other words a 100% distribution).
It makes a difference.
If an IRA - then everything coming out as a distribution is taxable at ordinary income rates. However, if you're going to sell the investments and then reinvest in some other type of investment without having any funds come out of the IRA account, there is no current year tax implication because investment changes in an IRA don't get reported as taxable income.
If personal investment - then you need to consider what the cost basis of the investments in the account are in order to determine the capital gain/loss upon selling everything that's in there that you're selling.

The had taken an amount out of their 401K and into a IRA rollover (Gold select) - the former 401K wasn't with ING (I don't know who it was with).

The thought is to take the money out and not reinvest - they don't want to invest it in the market - want to buy gold and silver, to physically have the gold coins, not in anything "in the market".

They have an investment person they are going to talk to but wanted to be able to have some information to take with them before they talk to their investment person...

Thanks for the replies!!

[erchess]

Thoughts RE investments

If what I can sell my paper investments for declines by a given amount but the cost of living declines by the same amount, I have not really lost anything. If paper investments lose most of their value relative to the cost of living, paper money will lose value too. In that kind of environment what you would need is stored food and water and preferably a well and a garden, a fortified place to live, and weapons and ammunition with which you and your group of survivalists will defend what you have. People who have saved up coins will simply be deprived of them by people with more and better weapons and fighters.I personally think the chances of this scenario are so remote that I do not prepare for it.

If on the other hand, some investments hold value and orderly markets remain, in my opinion stocks of gold mining companies and the street tracks gold index fund are likely to do as well as gold coins and they have two advantages. As long as markets are orderly the paper investments will be readily converted into cash and paper investments are less likely to be stolen from you because they can be held by the broker.

[FEDUKE404]

Seek INVESTMENT advice

This board is pretty much for tax advice, and not for investment advice. "Uncle Sam" has done an excellent job of explaining the general tax implications of your decisions.

What you really need to do is to talk with a financial advisor, possibly even a certified financial planner, or even a stockbroker whom you trust.

Avoid anyone whose main goal is to make a commission from your choices. Also, unless you need the funds, selling any assets in the current very depressed stock market might be unwise.

Remember there is no such thing as a capital gain in an IRA account. Investing in precious metals can be a roller coaster ride, and you usually get no return on your investment (unless you own stock in a gold mining company) separate from gain/loss when the assets are sold. Be VERY careful! Why do you think there are so many advertisments on the late night cable channels selling "GOLD !!"

Good luck.

FE

[veritas]

Many tax professionals

are securities licensed. This may be a good way to go.

We spend a lot of time dealing with tax problems created by financial advisors and stock brokers.

[JoshinNC]

Is this money

in a brokerage account or an ING variable annuity? I don't know many investors who hold ING funds outside of ING's variable annuity. If the money is in the annuity, even if it's in an IRA, they may still be subject to a surrender charge from ING even if the change of investments does not constitute a "distribution" from the IRA.

I am both an EA (enrolled agent) and a registered securities representative and I would NEVER advise a client to own gold, silver, other precious metals, commodities or even individual stocks. I would recommend that the client buy a fund that invests in these types of investments for a variety of reasons, the least of which would be professional management, ease of disgarding of/purchasing more of the asset, and certain tax advantages.

What state do your parents live in? I'm sure you can figure out from my screen name that I'm in NC, but this board has members throughout the US who could either help your parents or find a local pro to assist.

[JoshinNC]

Well said Veritas

I truly believe that at some point the tax profession and the investment profession are going to become so intertwined (as if they aren't already) that it would almost be malpractice for a tax pro to not have at least a rudementary understanding of investment planning. I would advise any person entering the tax profession or still young enough to care to expand themselves to take several courses in investment planning and, if so inclined, to get securities licensed for the benefits to themself, their practice and their clients.

BTW, my BD is really p**ssing me off. Who are you with. I've heard HD Vest does a good job with tax pros. Do you have any experience with them?

We can take this offline if you would like. Just send me a private message/email/whatever.

[Snaggletooth]

Where are your parents?

If they are in TN or north AL, I could probably spend some time with them. I don't sell anything, but can give all manner of tax/investment repercussions as I have been through them with my clients for 25 years.

My guess is they've rolled over their 401K into another administered account with ING, probably a variable annuity. If this is the case, I can almost promise there are better alternatives.

If interested, please send me a private message at the upper right.

[Lion]

And...

And, are they talking about having his IRA sell his current investment and buy gold or other investments still within the IRA, or do you mean he'll take a distribution from his IRA to buy gold or whatever in a personal, fully taxable account? (IRAs are not joint accounts.) What would be his AGI without a distribution? What would be hers? Will MFS be more advantageous than MFJ? You can see your question needs a lot of personal information to answer. They should really sit down with an EA or other tax advisor and a financial advisor and explain what they hope to accomplish over the short run and long. Then they can receive suggestions on how to meet their goals and the tax implications now and later of which options they are considering. Education will help them make an informed decision. (Not a quick answer on a message board.)

[sea-tax]

Gold and silver coins- now why didn't I think of that?