Tax problem with the FIA Retirement Investments Amex

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MemberSince99
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Tax problem with the FIA Retirement Investments Amex

Postby MemberSince99 » Mon Mar 04, 2013 8:58 pm

I have this card, and as I was thinking about the ramifications of it, it occurred to me that this may not be the hot idea I initially thought.

The reason for this, and please correct me if I'm wrong, but rewards normally are not considered taxable by the IRS. However, if your rewards go into your investment account then ultimately whenever you pull those rewards they WILL be taxed. Thus your 2% rewards become fair game to the IRS.

Does anyone have any knowledge which says that this is false? If not, suddenly that 2% across the board doesn't look so hot to me anymore.


cashback
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Postby cashback » Mon Mar 04, 2013 9:35 pm

Yes, when you eventually draw from your 401k, it will be taxed just like the rest of it.

That is a good point to bring up though, because if you had the Fidelity Investment Rewards card, it wouldn't work like that. Difference being money put into a regular investment account is already taxed. Money put into a 401k is not taxed and will be taxed when drawn upon.
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Amex BCE 25K ---- PenFed Platinum Rewards 15.5K --- US Bank Cash+ 12K --- Discover IT 6K --- Citi Dividend 5K --- Chase Freedom 12.5K --- Amex SPG 6K --- Citi Thank You Preferred 15K

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DavidNY
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Postby DavidNY » Mon Mar 04, 2013 9:43 pm

I have the 'investment' version, the rewards just go to a cash account. I think your rewards work the same way, at that point it's your cash to do with as you like.

cashback
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Postby cashback » Mon Mar 04, 2013 10:15 pm

DavidNY wrote:I have the 'investment' version, the rewards just go to a cash account. I think your rewards work the same way, at that point it's your cash to do with as you like.


He can't touch the money if it is deposited into a 401k. When he reaches the age and starts drawing on it, it will get taxed just like the rest of it.
Credit Cards
Amex BCE 25K ---- PenFed Platinum Rewards 15.5K --- US Bank Cash+ 12K --- Discover IT 6K --- Citi Dividend 5K --- Chase Freedom 12.5K --- Amex SPG 6K --- Citi Thank You Preferred 15K

Not Used
Citi Simplicity - 5K, Sam's Club Discover - 10K

Future Cards
Sallie Mae World Mastercard

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DavidNY
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Postby DavidNY » Mon Mar 04, 2013 10:21 pm

cashback wrote:He can't touch the money if it is deposited into a 401k. When he reaches the age and starts drawing on it, it will get taxed just like the rest of it.


The rewards go first into the cash account, then it's up to him if he wants to put it into the 401k.

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Postby cashback » Mon Mar 04, 2013 10:32 pm

DavidNY wrote:The rewards go first into the cash account, then it's up to him if he wants to put it into the 401k.


Oh, well in that case you're right.

But why would someone want to put tax free income into a 401k? Just to be taxed later?
Credit Cards
Amex BCE 25K ---- PenFed Platinum Rewards 15.5K --- US Bank Cash+ 12K --- Discover IT 6K --- Citi Dividend 5K --- Chase Freedom 12.5K --- Amex SPG 6K --- Citi Thank You Preferred 15K

Not Used
Citi Simplicity - 5K, Sam's Club Discover - 10K

Future Cards
Sallie Mae World Mastercard

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Sevenfeet
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Postby Sevenfeet » Mon Mar 04, 2013 10:52 pm

The Investment Rewards account uses a standard brokerage account for cash back savings. You could have it sit there as cash or choose it to buy securities or invest in an IRA or 529. But nothing says the money has to be used other than cold hard cash back to you.
Cards:
American Express Platinum (NPSL)
Penfed Platinum Reward Visa ($28K)
Chase Freedom Visa ($25K)
Fidelity American Express ($20K)
American Express Blue Cash Preferred ($20K)
Bank of America Cash Rewards MasterCard ($20K)
Citi Thank You Preferred Visa ($9.5K)
Chase Sapphire Preferred ($7.5K)
US Bank Cash + Visa Signature ($7K)
Discover IT ($4K)

cashback
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Postby cashback » Mon Mar 04, 2013 10:58 pm

Sevenfeet wrote:The Investment Rewards account uses a standard brokerage account for cash back savings. You could have it sit there as cash or choose it to buy securities or invest in an IRA or 529. But nothing says the money has to be used other than cold hard cash back to you.


Here is the text for the Retirement card, which Member has.

"For every $2,500 in purchases you make, you earn 5,000 points, which can be automatically redeemed for a $50 current year contribution to your Fidelity IRA account."

It doesn't sound like it goes into a cash account first, like the Investment card does.

Either way, if it goes into a cash account or not, putting that money into a 401k is a bad idea, since it is already tax free. By putting it into a 401k, it would be taxed when drawn upon.
Credit Cards
Amex BCE 25K ---- PenFed Platinum Rewards 15.5K --- US Bank Cash+ 12K --- Discover IT 6K --- Citi Dividend 5K --- Chase Freedom 12.5K --- Amex SPG 6K --- Citi Thank You Preferred 15K

Not Used
Citi Simplicity - 5K, Sam's Club Discover - 10K

Future Cards
Sallie Mae World Mastercard

FICOs
Exp 772 - TU 781 - Equ 781

MemberSince99
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Postby MemberSince99 » Tue Mar 05, 2013 12:17 pm

another thing I had considered was putting money into the account just to invest. But then I realized if I do that, I get taxed twice - first on the wages I earned and second when I go to get the money later on as well.

Thus that idea really doesn't make any sense unless you really love paying taxes. (I don't, I'm not morally opposed to them as being akin to the Black Death or anything, but let's face it we all pay more than enough as it is without paying twice on the same money).

So it really seems like it makes a lot more sense to go the investment card route vs the retirement card in terms of taxes. Even then, though, you will get taxed on money that was tax free. I'm thinking there are smarter ways to get a 2% return.

In hindsight, I don't think I would apply for this particular card, I just didn't think about the tax implications before I did that. Shame on me for that. Hopefully anyone who is interested will consider that before applying. Maybe it doesn't bother others, but it's worth considering.



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