Contributions to a Roth IRA are not tax-deductible and early withdrawals are both taxed and penalized. You don’t just pay taxes as normal income when you take an early withdrawal from a 401k they also tack on a 10% penalty making such investments unusually risky.

Untaxed capital gains on the other hand is just a free zero interest loan.

Anyway, having stocks is irrelevant here. What matters is for tax burden is what percentage of people’s income comes from capital gains.

Interestingly, that's not true in Canada's version of the Roth, the TSFA (tax-free savings account). There, you can make early withdrawals without being taxed, but that counts as a penalty towards future contributions. The total contribution amount is added to each year.

The capital gains you’re talking about are not “untaxed”, they simply don’t exist. An unrealized capital gain is one that hasn’t occurred. It’s very intellectually to pretend that unrealized gains are real, and extremely so to pretend that they are income.

Okay - but said “unrealized gain” could have dividend payments or be used as collateral for a loan.

> said “unrealized gain” could have dividend payments or be used as collateral for a loan

Dividends are taxed. There is a real albeit complicated scam in the step-up basis with loans, though.

Dividends are taxable income my dude… kinda showing how well you understand the topic here.

I notice you ignore the collateral on a loan argument that points to just how real these gains are.

His point was these Dividends payments exist due to unrealized gains.

A better example is zero-coupon investors must report a pro-rated portion of interest each year, as income, even though interest hasn’t been paid out. Aka you own a bond and haven’t been paid yet but you still owe money due to the increase in value.

So to be clear simply owning a bond can be a taxable event while stocks are given an interest free loan on their gains.

Zero-Coupons do have a peculiar tax obligation. But they also have a face value and a maturity date. Something stocks, and most other classes of asset don’t have.

There is no interest free loan on stock. Capital gains and income derived from trading securities is fully taxed. What you’re arguing for is a wealth tax, a completely seperate category of tax from income tax. But you’re making this argument using highly deceptive language, and what seems to be a rather poor understanding of how the existing tax system works.

Houses are taxed based on unrealized gains, so their real enough.

Houses are not taxed based on any gains at all. Houses are taxed based on a government issued current valuation. People complain about the accuracy of these valuations all the time, but the taxation has nothing to do with capital gains. If it was a tax on capital gains, then you’d only be paying a tax on the difference in valuation from year to year. Which isn’t how it works at all. It’s more of a wealth tax.

I said unrealized gains not capital gains.

The government doesn’t limit it’s valuation of the house to a demonstrated sales price but instead uses an estimate for the market price. Doing the same with stock is easy, they just hand out a tax break instead.

> I said unrealized gains not capital gains.

Unrealized (capital) gains…

In California, home valuation increases are capped to 2% per year via Proposition 13 and decreases follow the market. If your house doubles in value, most of that growth is still unrealized until you decide to sell.

That’s still unrealized gains even if it’s not the fair market price.

Agreed.