Not sure I understand. I have money in a 40lK, an IRA and individual stocks (I am retired). Is this saying that when I sell a stock at a profit I will have to pay and extra 2.9% in tax? If this is the case where does the “unearned” income enter the picture? To me unearned would mean that the stock has gone up in value but I haven’t sold it, so I don’t have any income other than dividends.
Once your money is inside an IRA, it is effectively on the other side of a fence; and you are theoretically not able to touch it.
[That’s why, for people who wish to own gold or silver in an IRA, they cannot be the possessors of said gold/silver. It has to be in the control of a trustee, and typically resides in a Brinks vault. (Where you pay storage fees, btw)]
Whatever you do with your IRA it is tax free while it remains in the IRA. Win, lose or draw. The idea is that once you withdraw money from the IRA, it is like money that falls from the sky, and which you have to pay your ordinary income tax on. There are no cap gains treatments, there are no deductions for losses. The idea is that you make these withdrawals near your retirement, when you are making no money from the job you retired from, hence whatever growth you can achieve in the IRA over many years can be taken out at your (probably) lower near-retirement tax rate.
But many people have stocks in what’s typically known as a “street” account. (one can of course have both street and IRA accounts at the same time) You just accumulate an extra $10K in your regular ckg acct and send it in to Etrade and start flipping stocks. Those trades make or lose money and perhaps earn dividends. But it’s not a retirement acount; it’s excess money you’ve brought in and would, in the old days, put into a savings account. But that’s no fun. Generally speaking, If you buy and sell a stock for a gain, the gain is called a “capital gain”. if you buy and hold a stock for more than a year, it’s also a capital gain but significantly, the transaction is subject to “capital gains tax treatment”, which is pretty favorable. Along the way, you receive cash dividends for some stocks. This new tax would apply both to the gains you rec’d buying the stock for (say) $20 and selling it for $30, *and* the divs you got along the way. Pretty neat, huh? For them. Incidentally, you have to sell a stock you’ve previously bought to create a gain or a loss. If you never sell it, it’s never a gain nor a loss. There is no taxable event.
“Unearned” income has a fairly precise meaning, at least as far as the IRS is concerned: It’s anything you didn’t exchange your time for; to wit, “An individual’s income derived from sources other than employment, such as interest and dividends from investments, or income from rental property.” If you buy a widget on ebay for $50 and sell it for $80, that is capital gain...unless it is part of a widget-reselling business you own and file a schedule “C” on.
This new situation means that this new 2.9% tax is applied to all your unearned income, and more insidiously, it applies to the *first dollar* of unearned income. I believe it used to apply to unearned income above a certain threshold.
This new tax is very discouraging to investing in stocks, buying real estate for investment, or starting a business. Ask me if I’m surprised.
Upon rereading my reply, I didn’t answer your implied question!
IANACPA but it seems to me that yes, your IRA withdrawal would indeed be subject to this additional tax bite since it came not from your work, but from your evil capitalist investments.