Quick question about Roths...

[Guest MelsMontanaDraft]

I know this may sound stupid, but I cannot find anything on the IRS site that provides a clear cut answer to my question.

The IRS site says: Although interest earned from your IRA is generally not taxed in the year earned (using generally is what concerns me because generally says there are cases where interest earned is taxable).

My question: Are all sales of securities held solely in a Roth IRA account tax free as long as a withdraw is not made?

Thank you,

[Guest ndcook]

ALL withdrawals from a ROTH IRA are tax free if the withdrawm in a qualified distribution. The cost bases is tax free because you have already paid taxes on it. The investment earnings are tax free because that is what the law says. ie. the advantage of a Roth over a standard IRA:)

[JAMES PATRICK]

Mels,

An instance where interest would be taxed in the year earned would be when you overcontributed to an IRA and then withdrew that overcontribution. You are required to also w/d any earnings made on that overcontribution and they are taxable in the year earned, not the year w/d.

The answer to your question is YES.

[Guest MelsMontanaDraft]

Thank you. To make sure I am clear:

You can basically day trade different securities as often as you would like without having to pay any capital gains assuming you haven't exceeded the annual contribution limit (currently $2000)?

[JAMES PATRICK]

To your hearts content.

[John G]

In an IRA the concepts of short term gain, long term gain, interest or dividend are without any meaning. In a Roth, they are never taxed, even upon withdrawal as long as you comply with all eligibility and distribution rules.

In a regular IRA, there is zero impact during the asset accumulation and building period. Taxes on distributed regular IRA assets depends upon the amount of deductable vs after tax contributions. All taxable distributions are treated as ordinary income even if the "income" was produced by long term capital gains.

Note: If you expect to have extremely large long term capital gains from assets you expect to hold until retirement (not something I could recommend given the ebb and flow of companies fortunes) you might be better off to hold stocks outside of an IRA in a taxable account and take advantage of long term capital gains treatment.

[JAMES PATRICK]

What you said is true John but don't forget he is talking about a Roth. If he can "day trade" and make money inside a Roth THAT IS THE BEST OF BOTH WORLDS ( how likely he will be successful is another matter).