Question about tax on stock capital gain within IRA?

Discussion in 'Taxes and Accounting' started by 20092009, Oct 5, 2009.

  1. 20092009

    20092009

    For example, if I deposit $5000 into IRA, and I use this $5000 to trade the penny stock, and I make a lot of money, but I keep the capital gain in my IRA, and keep trading stocks for short term by using my IRA cash, for example, if I turn this $5000 to one million dollar in 10 years, do I need to pay tax on the capital gain from my IRA?

    Thank you very much!
     
  2. pspr

    pspr

    You won't be taxed until you withdrawl money from your regular IRA. As you take money out it will be taxed as ordinary income. You will incure an additional 10% penalty on any money you take out before you are 59 1/2 and must start making regular withdrawls by 70 1/2, Roth IRA's operate differently.
     
  3. 20092009

    20092009

    How does Roth IRA work?

    What is the difference for trading stocks by using cash account or IRA account? Advantages or Disadvantages?

    Thanks.
     
  4. You are not able to trade on margin in an IRA account, so good luck.
     
  5. The difference between Roth IRA and traditional IRA is that the contributions to Roth IRA are not tax deductible but withdrawals are tax free. For regular IRA contributions are tax deductible but withdrawals are taxed as ordinary income.

    http://beginnersinvest.about.com/cs/iras/f/tradvsrothira.htm
     
  6. 20092009

    20092009

    Thank you for the link, very helpful information.

    I have a question about this part:
    ----------------------
    Roth IRA Profile:
    Available only to single-filers making up to $95,000 or married couples making a combined maximum of $150,000 annually.
    ------------------------

    Let's say, if I make less than $95000 for the next three years, and I contribute $5000 for each year. So my principle contribution is $15000, three years later, I make over $95000 and I am not able to contribute to my Roth IRA.

    If for the next 30 years, I use the $15000 to trade on stocks, and turn the money into 5 millions dollars, do I need to pay tax on the 5 millions dollars if I withdraw the money at 59 1/2 years old.


    Thank you very much!
     
  7. Withdrawals from Roth IRA are tax free.
     
  8. 20092009

    20092009

    This really confuses me a lot. If you are a day trader and live in NYC, and if you can make one million dollars(short term) per year, then you will be taxed about 45%(federal tax, state tax, and city tax), and while the capital gain in the IRA is free. If you are a great trader, and able to turn the $15000 into 5 millions in 30 years, the tax free is great for you. But if you withdraw before 59 1/2 years old, and you pay some penalty fee. But I think the penalty fee is much lower than 45%, why not choose pay penalty fee instead of trading on margin account?


    How you guys deal with it if you are a day trader?

    Thank you very much!
     
  9. 20092009

    20092009

    It makes sense that withdrawals on principle contribution are free, since the principle contribution are already taxed.

    But how the withdrawals on capital gain from stock market?

    Thanks.
     
  10. Since the contributions to IRA account are limited so what are you going to do to with the rest of your trading capital? Unless you don't have more than $5,000 per year.
     
    #10     Oct 6, 2009