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Old 11-13-2014, 09:35 AM
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Tax rules in IRAs

My understanding is that all IRA transactions are not taxed within the IRA. Specifically, if I buy a security for $10,000 and sell it for $15,000, the $5,000 gain is not taxed. If that is so, here is my question. What would stop me from selling my securities in my IRA, buying it back at the higher price, and selling it again for a gain that is much less that the $5,000. Is there a time limit?



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Old 11-13-2014, 04:06 PM
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My understanding is that all IRA transactions are not taxed within the IRA.Specifically, if I buy a security for $10,000 and sell it for $15,000, the $5,000 gain is not taxed.=======>>>>>>>agreed; no activity in an IRA is taxed, including any capital gains. The taxable event occurs when a distributions are taken from an IRA (when you take the money out) All distributions are taxed at your future income marginal tax rate.

If that is so, here is my question. What would stop me from selling my securities in my IRA, buying it back at the higher price, and selling it again for a gain that is much less that the $5,000. Is there a time limit?========>>>>>>>>>>>no I don’t think so; You only pay tax on the money you withdraw from an IRA and then it is taxed as ordinary income as it is an IRA;however, It's bad enough that gains within your ira are taxed as ordinary income only when they are withdrawn, but it really hurts when those gains are erroneously taxed twice once when the they are distributed from the IRA, and again when the securities are eventually sold from a regular brokerage account. But because you have already paid taxes on the money you contribute to your IRA, you can withdraw an amount equal to your contributions, I mean return of contributions, at any time for any reason without creating a taxable event.



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Old 11-13-2014, 04:33 PM
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So just for my clarification, in my scenario, I would not pay tax on the $5K until I withdrew it from the IRA. I would pay on the $15K as income as I withdrew it. If that is the case, if it were a Roth, I wouldn't pay anything?



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Old 11-14-2014, 08:56 AM
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Quote:
Originally Posted by derohanes View Post
So just for my clarification, in my scenario, I would not pay tax on the $5K until I withdrew it from the IRA. I would pay on the $15K as income as I withdrew it. If that is the case, if it were a Roth, I wouldn't pay anything?
correct;


I would pay on the $15K as income as I withdrew it===correct

If that is the case, if it were a Roth, I wouldn't pay anything===>>>>>>>>>>>no aslongas you can satisfy the requirements here; yu must pay taxes on your R-IRA withdrawal;1. if you are under 59 1/2. It’s true that you can withdraw your contributions at any time, no matter how old you are, tax free. However, once you start withdrawing earnings, the story changes. If you aren’t 59 1/2, and you withdraw earnings except in specific cases, including disability or etc, you will pay income taxes on that money. On top of that, you will also be levied a 10% tax early w/d penalty by the IRS. let’s say you contribute $3k each year to your r- IRA. After two years, your account contains $6,500. you decide that you need a little extra money to take care of an unexpected expenses. you are 43. So, if you want to withdraw money, you can withdraw up to $6k without pay taxes, because that is how much you put in over the course of the two years. However, if you withdraw more than $6k,your contributions for 2 years the amount beyond that will be taxed by irs/your state — and you’ll have to pay a 10% penalty on top of that.

2;also aslongas You Have Had Your Account Less than 5 Years, then, you can’t start withdrawing earnings without penalty until you have had the account for 5 years and it doesn’t matter how old you are. Let’s say you’re 58. You open a R-IRA, and contribute $5k. For the next few years, you contribute that amount of money. So, after four years of contributions, you have $20k in contributions, plus another $3k in earnings, for a total of $25k. Even though you are now 62, and beyond the 59 1/2 milestone, you haven’t had your R-IRA for at least 5 years. This means that if you withdraw more than $20k, you will be subject to income tax on the money. However, since you are beyond age 59 1/2, you don’t have to pay the 10% early w/d penalty.



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Old 11-14-2014, 10:24 AM
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Excellent response. Thank you very much. I was unaware of the 5-year restriction. I assume rolling over doesn't penalize you for the 5-year restriction? I've moved my account twice from one brokerage to another.



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