Selling stock using Roth IRA/capital gains?

[Guest Scott_M]

Hello,

I'm 30 years old and have a Roth IRA that consists of stocks and cash ( in a money market fund). It started as a traditional IRA and i've had it since 1996. Now that i have a little money in it i'm starting to worry i might do something wrong that i don't realize and pay for it later. My question is if I sell some of the stock for a gain do I have to pay capital gains tax?, even if I leave the profits in the IRA account? I've always bought stocks with the account and haven't sold any yet, so before I do I want to know if I have to pay tax. I can't seem to find answers to this simple question so I hope someone can help me out!

Thanks in advance,

Scott

:confused:

[Mike Preston]

You should be ok, Scott. The whole purpose of the Roth IRA is to enable any gains that you might otherwise have to pay tax on to be completely tax free. But there are rules that apply to how and when you can gain access to those funds without having to pay tax. They are pretty simpe, really, but they don't apply to the question you are asking, so let's not go there just yet.

Instead, dealing with your specific question, it appears that your Roth IRA owns some stock that you now want to have the Roth IRA sell. When you do that, the proceeds will then belong to the Roth IRA and the Roth IRA can then re-invest them. The sale of the stock and the Roth IRA's receipt of the proceeds are tax-free transactions. You have no taxable income from that transaction. So we never get to the issue of whether or not the sale of the stock generates a captial gains tax, because it doesn't generate any type of tax!

But you mention one thing that is a bit confusing:

"even if I leave the profits in the IRA account? "

The monies in your Roth IRA, including any gains, remain free of tax only as long as the funds stay in the Roth IRA, or are withdrawn in accordance with the rules I mentioned above. Those rules allow for distribution only if:

1) you die

2) you become disabled

3) you attain age 59 and 1/2

4) your withdrawal meets a very limited exception for first time home buyers up to $10,000.

Hence, if you do anyhing with the profits other than leave them in the Roth IRA, then you will end up paying some tax. Since I'm pretty sure that isn't what you want, I won't go into the details of how much the tax would be.