Taxable accounts 

What tax forms will I receive? 

For more information on tax forms and key dates, please visit our tax form resource center. 

Capital gain vs capital losses 

Short-term capital gains 

Short-term capital gains are taxed at the same rate as your ordinary income. 

• If you sell an asset you have held for one year or less, any profit you make is considered a short-term capital gain. The clock starts the day after you acquire the asset up to and including the day you sell it. 
• For 2020, ordinary tax rates ranged from 10% to 37%. 

Long-term capital gains 

Long-term capital gains happen when you hold an asset for longer than a year. 

• For 2020, the long-term capital gain tax rates were 0%, 15%, and 20% for most taxpayers. 
• If your ordinary tax rate is already less than 15%, you could qualify for the 0% long-term capital gains rate.

Capital Losses

If your investments end up losing money, you can use those losses to reduce your taxes.  

The IRS allows you to match up your gains and losses for any given year to determine your net capital gain or loss. 

• If you end up with a net loss, you can use up to $3,000 per year to reduce your taxable income. 
• Any additional losses can be carried-forward into future years, to offset capital gains or another $3,000 in ordinary income. 
• Since you don't generate capital gains or losses in a retirement account, you can't use trades in IRAs to offset your income in this manner. 

What is a wash sale? 

A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you: 

• Buy substantially identical stock or securities. 
• Acquire substantially identical stock or securities in a fully taxable trade. 
• Acquire substantially identical stock for your Individual Retirement Account (IRA) or Roth IRA. 

The IRS doesn’t allow you to deduct losses from sales or trades of stock or securities in a wash sale.  

If you want additional information about wash sales, check out the IRS Publication 550.  

IRAs 

What tax forms will I receive? 

For more information on tax forms and when you would receive them, please visit our tax form resource center. 

What is the deadline for making IRA contributions? 

If you’re still eligible, you can contribute to your prior year contribution limit until April 15th of the current year.  

When making an IRA contribution through M1, make sure to designate which tax year you are contributing to: prior year or current year. 

What are the current contribution limits? 

Below lists the contribution limits for IRAs. 

You can never contribute more than you’ve earned for the year. 

What to know about taxes and IRA accounts? 

Roth IRA 

Benefits: 

• No taxes on earnings if you’ve held the account for more than five years, you’re age 59 1/2 or older, or a special exception applies. 
• No taxes on withdrawals of contributions 
• No required minimum distributions (RMDs) 
• No age limit to open and contribute 

Other notes about Roth IRAs: 

• Eligibility and contribution amounts could be limited by your income. 
• Contributions are not deductible 

Traditional IRA 

Benefits: 

• Contributions may be tax-deductible 
• Eligibility is not limited by your income 
• Earnings grow tax-deferred 

Other notes about Traditional IRAs: 

• You can’t contribute after 71 1/2 

• You’re required to take RMDs starting at the age of 71 1/2 

What are RMDs? 

You cannot keep retirement funds in your account indefinitely. You generally must start taking withdrawals from your IRA or SEP IRA when you reach age 70½. Roth IRAs do not require withdrawals until after the death of the owner. 

Your required minimum distribution (RMD) is the minimum amount you must withdraw from your account each year. 

• You can withdraw more than the minimum required amount. 
• Your withdrawals will be included in your taxable income except for any part that was taxed before (your basis) or that can be received tax-free (such as qualified distributions from designated Roth accounts). 

You must start taking RMDs on April 1 of the year following the calendar year in which you reach age 70½.  For each subsequent year after your required beginning date, you must withdraw your RMD by December 31. 

In 2020, the age increased to 72.  If you were born on or after July 1, 1949, you have until the market closes on April 1 the year after you turn 72 to take your first RMD. For each subsequent year, you must take your RMD by December 31. 

For more information on RMDs, please visit the IRS FAQ page. 

Disclaimer 

M1 and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only. It is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.