2.15.2020

White House considering new tax-deferred accounts to encourage investing

CNBC:
As part of a forthcoming package of proposed tax cuts, the White House is considering ways to incentivize U.S. households to invest in the stock market, according to four senior administration officials familiar with the discussions.

The proposal, one of many new tax cuts under consideration, would see a portion of household income treated as tax-free for the purposes of investing outside a traditional 401(k). Under one hypothetical scenario described by multiple officials, a household earning up to $200,000 could invest $10,000 of that income on a tax-free basis, although officials noted these numbers are fluid.
CNBC's Kayla Tausche, like her colleague Brian Sullivan, is a blithering idiot:
Money put into the account would be done so on an after-tax basis, and taxed when withdrawn as well; but any accumulation of profits during the investment timeframe, known as capital gains, would not be taxed.
No, an accumulation of profits is not "known as capital gains." The accumulation of profits comes from both dividends and capital appreciation. Capital gains are taxed only when a position is sold. Tausche doesn't mention how dividends are treated, though they make up the vast majority of the "accumulation of profits" for low-turnover investors.

The proposed accounts arguably aren't of much value. Capital gains are already deferred for buy-and-hold investors. And even realized capital gains and dividends are taxed at low rates. Being taxed at ordinary income rates upon withdrawal will likely make these accounts a worse deal than just buying index funds or ETFs in a taxable account. Which, by the way, you should already be doing.

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