Taxes on Roth Conversion

[Guest GeorgeB]

Have had traditional ira self-directed with stock that has split many time. Is the cost basis simply the $2,000 initial investment and all the value of the stock (splits) above that taxabel?

[John G]

You may need to expand of the facts associated with your question. Cost basis does not apply to IRAs, the accounting is different with non-IRA investing. Once your funds a deposited in an IRA you can forget about long term and short term trades. There is no distinction between interest, dividends, short term gains, or long term gains. You also can ignor stock splits in an IRA. They all just increase the eventual size of the account. You track IRA investments primarily for your own investment understanding, the accounting records are less complicated in my view then "regular" investing.

What is important is the amount of initial and subsequent investment that was previously taxed. With a regular IRA, the previously taxed part is not taxed when you withdraw funds. With a Roth, nothing is taxed. (Of course, I am assuming that you meet the various timing requirements.)

In your case, I assume that the $2,000 refers to an annual contribution. If you deducted it on your previous tax filings, then you will pay tax on the withdrawal. If you did not deduct the $2K, then in retirement, it passes out of a regular IRA tax free.