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Tax Consequences for IRAs, 401(k) Plans

Q: Are the reinvested dividends and long and short term capital gains from an IRA or 401(k) taxable? What about gains if we buy and sell funds or if the funds go up in value or losses if we buy and sell funds or if the funds go down in value?

A: No, nothing that happens inside an IRA/401(k) has any tax consequences.

The only time taxes might be due on an IRA is when you make a withdrawal. That withdrawal amount is all then considered taxable income, unless your IRA was funded in part with after tax contributions.

These questions are actual inquiries submitted by taxpayers to our AARP Tax-Aide Program. The AARP Tax-Aide Program is a volunteer-run, free tax-preparation and assistance program offered to low- and middle-income taxpayers with special attention to those age 60 and older. Our volunteers are trained and IRS-certified to understand individual federal-tax issues. Our volunteers provide tax assistance as a public service and cannot guarantee the accuracy of the information provided.

 

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