Taking Cash Out -- you may will be required to pay capital gains tax.
Recent Changes to Capital Gains Tax
Starting back in 2003, the long-term capital gain tax rate was reduced to 15% or 5% for individuals in the lowest two federal income tax brackets. Short-term capital gains are taxed at an individual's "normal" incremental tax rate. The approved changes to capital gains tax law has a sunset provision and it scheduled to revert back to the rates - around 20% - that were in effect prior to 2003.
Other recent changes to tax law provisions dealing with capital gains include:
* In the years 2008, 2009, and 2010 individuals in the 10% and 15% tax brackets will pay 0% on gains from eligible dividends and some capital gains.
* A 15% tax rate on dividend and capital gains that was scheduled to expire in 2008 was modified by President Bush in May 2006 and now extends through 2010.
* In 2010 and beyond, the qualified 5-year 18% capital gains tax rate will be reinstated.
* After 2010, all dividends will be taxed at the standard income tax rate, regardless of the tax bracket in which the taxpayer falls. Other longer-term capital gains will revert back to the 20% level or for individuals in the 15% tax bracket the capital gains tax will stand at 10%.