rfg@hound.UUCP (R.GRANTGES) (10/18/85)
[] I have seen and heard many times that putting IRA funds into tax free investments made no sense. I can see that it makes somewhat less sense than putting non-IRA money into tax frees, but no sense at all? In an IRA the tax is deferred, not removed. If IRA money were placed in a tax free investment, when it was bailed out, say 40 years later at age 65, wouldn't the only tax due be on the original deposit, all the earnings having been tax free? If so this could cut the tax due enormously, if not true, then how can the tax-free investment be called tax free? -- "It's the thought, if any, that counts!" Dick Grantges hound!rfg
halle@hou2b.UUCP (J.HALLE) (10/18/85)
All withdrawals from an IRA are treated as ordinary income, regardless of how the money got there and how it was earned. Even tax-free income. The regulations are very explicit and very clear on this point. Long term capital gains are also treated as ordinary income, so the 60% forgiveness is lost. Thus vehicles producing capital gains might be inappropriate for an IRA. (I say might because if the gains are large enough, the deferral could make up for the loss of forgiveness. Each situation must be analyzed separately.) Since tax-free investments produce less than taxable ones, they are always wrong for an IRA.