Wednesday, January 08, 2003

Lambert Strether (in comments) points us to this quote:

Today, a senior administration official confirmed that the government would not change the rules and that stock dividends earned in 401(k) plans would indeed be taxed as ordinary income when it is withdrawn.

"They didn't get taxed when it was going in," said the official when asked about the issue today. "It all works out in the end," she said. "Trust me."

Let's be clear on this. When you put money in your 401(k) or 403(b) plan that income is not taxed. However, it is taxed as income when you withdraw it. So, while people who have dividends outside their 401(k) plans will pay no taxes on them, people with 401(k) plans will still continue to pay income taxes them.