Understand effects of tax increase

I would like to comment on the opinion of Sam Yingling in the Oct. 12 guest column titled “Say no to tax hike on investment income. I am not commenting on whether I agree or disagree with his opinion. I think Sam has misunderstood how the tax law affects 401(k) plans and pension plans.

Sam states that “tens of millions of ordinary Americans whose 401(k) investments and pension plans depend on income from dividends and capital gains. Much of the future income they're counting on will be gobbled up by the federal government if this tax increase goes through. Taxes on dividends and capital gains in 401(k) plans and pension plans are deferred. That means the owner of these plans do not pay taxes on these plans every year. They only pay taxes when they withdraw money from the plans. When money is withdrawn from these plans, the entire amount withdrawn is taxed as ordinary income.

Capital gains taxes do not apply to these tax deferred plans. If the Bush investment tax breaks are allowed to lapse, this will have no effect on owners of 401(k) plans or pension plans. But it will affect those who own stocks, bonds, mutual funds or other investments outside of retirement plans.

I encourage anyone who reads this to ask themselves, friends, neighbors and co-workers if they own these investments outside of retirement plans. Then ask them how this will affect their lifestyle. Once you have this information you can make an informed decision on whether or not you favor the tax hike.

Jay Delfin

Chicago