Document Type


Publication Date



Retirees beware. The easy money policy of the Federal Open Market Committee and the 15 percent tax rate on qualified dividends have encouraaged retirees, especially middle-income retired savers, to reorient their nest eggs away from certificates of deposit, treasuries, and money market funds to dividend-paying stocks and mutual funds. According to the IRS, 43 percent of taxpayers age 65 or older reported qualified dividend income amounting to nearly half of the qualified dividend income reported by all taxpayers. By contrast, 46 percent of taxpayers age 65 or older reported net capital gains amounting to 30.5 percent of the net capital gains reported by all taxpayers. But 2013 is coming, and unless Congress extends the current rates or reaches an agreement on tax reform, dividends will be taxed as ordinary income at a marginal rate as high as 39.6 percent and most net capital gains will be taxed at 20 percent. For those whose modified adjusted gross income exceeds a specified amount (for example, $250,000 for a married couple filing jointly and $200,000 for an unmarried individual), a 3.8 percent Medicare tax will be added to the taxation of their net capital gain, dividend income, interest, and other investment income, bringing the highest marginal rate to 43.4 percent.


Reprinted with the permission of Tax Analysts.