Taxes and IRAs?

USA - If I am taxed on my income... I then post tax (withdraw from my account) to contribute 5k to an IRA, I then get taxed when I withdraw that money down the road, or up front again if I do Roth. So I’m getting taxed twice right? Vs if I just invest my money on my own elsewhere then I’m only taxed once. I just withdraw as needed not getting taxed again. Am I missing something here? Why would I do an IRA if I’m getting taxed again on my money that was already taxed?

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  • Amy
    Lv 7
    3 weeks ago

    No, you are not taxed twice.

    (1)

    When you contribute post-tax money to a Roth IRA, there is no second tax payment. The money and the tax you paid on it are included in that year's tax return because you earned it that year - the tax situation is exactly the same as if you hadn't put the money in an IRA.

    In the next year, your Roth IRA earns interest, and you don't pay any tax on it. In the year after that, your Roth IRA earns interest, and you don't pay tax on it. etc. Eventually you withdraw the money and don't pay tax on it.

    (2)

    When you contribute to a traditional IRA, on your tax return you do not include that amount in that year's taxable income. So you'll get a refund of the tax you already paid on it. Your tax situation is as if you never earned that money.

    Once again you do not pay tax on the interest the IRA earns each year. However you will pay tax - for the first time - when you eventually withdraw the money.

    (3)

    When you invest your money in a regular non-retirement account, you initially paid tax on the income, and then you pay tax on the interest it earns every single year.

  • 3 weeks ago

    When you invest elsewhere, you also get taxed on profits. You do not get re-taxed on contribution withdrawals from an IRA, only the profits, like anything else. Only the profit is taxed is what you are missing.

  • 3 weeks ago

    Wrong.

    1) With a regular IRA, you usually deduct the money when you put it into the IRA, so you are not taxed when you earn the money; you are taxed only when you take it out.

    2) If you can't deduct it when you put it in, then when you take out the money, you aren't taxed on the money you put in.

    3) With a Roth, you are not taxed at any point, not when you put it in, and not when you take it out; the only tax is when you earn the money.

    In all three situations, you are being taxed only once, and no more than once.

    If you do an IRA, then you are not taxed again on money that was already taxed. Either you are not taxed at all, or you are taxed (for the first time, not again) on money that was not already taxed.

  • 3 weeks ago

    Deposits to a Traditional IRA are adjusted out (deducted) from you income in the year you make the deposit and are taxed when you take them out. Deposits to a Roth IRA are made from income after your have paid tax but are not taxed again when you withdraw them.

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  • 3 weeks ago

    You are only taxed a single time.

    Traditional IRA

    When you contribute to an traditional IRA, that money is removed from your taxable earnings. 

    For example: If you earned $45,000 but contribute $5000 to an IRA, you are only taxed on $40,000.

    -- this is not a tax deduction, this is a reduction of taxable earnings.

    When you withdraw this money, it then is added back to your income you are taxed on it at that time

    Roth IRA

    When you contribution to a Roth IRA, you are taxed when you earn the money.  If you comply with the requirements of the Roth IRA, you are never taxed on this income again.

  • Eva
    Lv 7
    3 weeks ago

    There's a tax difference between a Traditional and a Roth. You get a tax deduction for the contribution to a Traditional when you make it, and pay taxes on it when you withdraw. You don't get a tax deduction for contributions to a Roth, but you don't pay taxes on it when you withdraw, as long as you don't withdraw before age 59 1/2 (with some exceptions). You are not being taxed twice with either type.

    • NA
      Lv 7
      3 weeks agoReport

      In low income years (and lower tax brackets), I put money in post-tax to a ROTH and converted IRA money to a ROTH (getting the taxes over with).  Converting money at 10% that I put in at 33% felt like a win.

  • 3 weeks ago

    No. Traditional IRA - you get a deduction on your income when you contribute. You DO NOT get taxed on the capital gains; but do get taxed on the funds when you withdraw them. ROTH - no deduction for contribution. You DO NOT get taxed on the capital gains, You DO NOT get taxed on the withdrawals when you take them.

    • Bob Oblaw3 weeks agoReport

      Okay, so essentially even though I already paid taxes on the money in my paycheck, come tax time, the deduction somewhat offsets that?

  • 3 weeks ago

    No.  You are only taxed once, if at all.

    If you contribute to a Traditional IRA, you may qualify for a tax deduction.  This turns your deduction into Pretax money.  Then, it is tax when you withdraw.

    Withdrawals of contributions from Roth IRAs are never taxed.  If you withdraw early (pre-age 59.5), only the earnings are taxed.  If you withdraw after age 59.5, it isn't taxed at all.

    • Wayne Z
      Lv 7
      3 weeks agoReport

      Yeah....30-40 time horizons have a way of not working out as planned.

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