Taxes and Your Investments

You may very well have investments in an employer-provided retirement plan or in your own individual retirement account (IRA). You may also own one or more taxable investment accounts, such as in a non-retirement mutual fund account, or shares of individual companies held in a brokerage account. Understanding the manner in which your investment earnings in each type of account will be taxed is important from a tax planning perspective. Here is a brief overview.

Tax-Deferred Accounts
You will not be required to pay taxes on capital gains, dividends, and interest earned on investments held in an employer’s qualified retirement plan or in a traditional IRA while the earnings remain in your account. However, when you start withdrawing money from these accounts at retirement, your contributions to your retirement plan and any earnings on your investments will be taxed at ordinary income tax rates (except to the extent of any after-tax contributions).

Roth Accounts
Roth contributions into an IRA or an employer’s qualified retirement plan have unique tax aspects. For both, contributions are made with after-tax dollars and investment earnings are tax deferred, but any distributions will be income tax free if all requirements are met. Generally, for tax-free treatment, you must maintain a Roth account for five tax years and make withdrawals after age 59½ (or meet certain other limited requirements).

Taxable Investment Accounts
It is important that you understand the term “basis” when it comes to calculating capital gains and losses on securities you have in a taxable account. The price you paid for the shares of stock or a mutual fund, adjusted for any reinvested dividends or capital gains distributions as well as for any cost of the purchase, is your basis in a security. Note: Reinvested dividends and capital gains distributions are added to basis because they are taxed in the year of distribution. To calculate gain or loss, you compare your basis in the securities to the amount realized on the sale of the securities.

For federal tax purposes, long-term capital gains are taxed at lower rates than ordinary income, such as interest on a savings account or a taxable bond.
Capital Gains Rate
Single Filer
Married Filing Jointly
Head of Household
Married Filing Separately
Up to $40,400
Up to $80,800
Up to $54,100
Up to $40,400
$40,401 - $445,850
$80,801 -
$54,101 -
$40,401 - $250,800
Over $445,850
Over $501,600
Over $473,750
Over $250,800
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Investments are not insured by the FDIC, are not deposits or other obligations of, and are not guaranteed by, any bank or bank affiliate. Investments are subject to risks, including possible loss of principal amount invested.

The information in the Financial Resource Center is provided for educational purposes only. The Financial Resource Center is not financial or investment advice. The Financial Resource Center may not 
comprehensively incorporate all aspects of risk, other assets, or your personal circumstances of your 
individual situation. 

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