traded using 401k funds when do I pay tax on gains

[ggelitetrader000]

I made about couple of thousands of gain last year using 401K account from my employer after transferring the account to brokerage after trading couple of stocks. Now I learned that I do not have to report it as a taxable gain to IRS at least during that year's end. Therefore it makes me think, when do I pay for those gains then? After reaching retirement? Thanks,

 

[comintel]

I made about couple of thousands of gain last year using 401K account from my employer after transferring the account to brokerage after trading couple of stocks. Now I learned that I do not have to report it as a taxable gain to IRS at least during that year's end. Therefore it makes me think, when do I pay for those gains then? After reaching retirement? Thanks,

Yes - when you distribute funds from the plan (at retirement normally, or earlier if distributed earlier).

It will be ordinary income at that time - no 60/40 capital gains tax break.

 

[ggelitetrader000]

thanks that means it is calculated using ordinary income in a normal tax bracket. not a short -term gain at 40%? I presume you mean ST40% tax when you say 60/40. Thanks.,

 

[comintel]

thanks that means it is calculated using ordinary income in a normal tax bracket. not a short -term gain at 40%? I presume you mean ST40% tax when you say 60/40. Thanks.,

Yes futures gains are taxed favorably at 60% long-term 40% short-term capital gains rates when done *outside* a tax-deferred plan. So really it does not pay to do them in a tax-deferred plan.

For stocks though, there is no 60/40 tax break, but as you say it will be taxed as ordinary income when withdrawn.

 

[ggelitetrader000]

comintel, i am actually filing a tax soon, so thought to steer the topic a bit away since you mentioned about 60/40 rules. you mentioned futures are at 60/40 tax gain, stocks not. How about options? I looked through and some of types of option positions like straddles are taxed at 60/40. Since I have been mostly doing naked call/puts last year those gains seem to be still not eligible for 60/40???
I looked through google and this is what i found. it looks bit more complicated. Specifically 1256 seem to give more specifica info:

Section 1256 Contract
A section 1256 contract is any:
Regulated futures contract,
Foreign currency contract,
Nonequity option,
Dealer equity option, or

Dealer securities futures contract.
Exceptions. A section 1256 contract does not include:
Interest rate swaps,

Currency swaps,
Basis swaps,
Interest rate caps,
Interest rate floors,
Commodity swaps,
Equity swaps,
Equity index swaps,
Credit default swaps, or
Similar agreements.


Thanks,

 

[piezoe]

I made about couple of thousands of gain last year using 401K account from my employer after transferring the account to brokerage after trading couple of stocks. Now I learned that I do not have to report it as a taxable gain to IRS at least during that year's end. Therefore it makes me think, when do I pay for those gains then? After reaching retirement? Thanks,

since you now have a self-directed 401K, depending on your age and other factors, you might consider converting your 401 to a Roth IRA. You can do it all at once or piecemeal, and of course you will owe regular income tax on any amount you convert because your contributions to your 401 were tax deferred.

Once converted to a Roth however, you will owe no more taxes and any gains in the Roth are tax free. Also, Roth's have no minimum withdrawal requirement starting at age 70 and 1/2. If you don't need the money, you can leave it in the Roth and let it build tax free for your heirs.