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Roth IRA Conversion
Posted on 12/19/24 at 8:53 am
Posted on 12/19/24 at 8:53 am
I have a question concerning taxes if I do a Roth conversion. If I have a 1000 shares of Stock X that I bought 2 years ago at $7 a share in a Rollover IRA, and Stock X is now worth $25 a share. If I move Stock X to a Roth, do I pay taxes on $7000 or $25,000?
Thanks for any replies.
Thanks for any replies.
3
Posted on 12/19/24 at 9:07 am to mooch1984
I'm not giving advice. But, I just made a conversion. Stocks were sold at current price, and taxes paid on that amount. You would have to rebuy the stock with that cash if you wanted to keep that stock. I think a better strategy would be to sell your losers to put in the Roth. Then, buy other stocks you think will win and the gains will be tax free. It's better if you pay taxes out of a cash account. That way you can invest the full amount you rolled over.
Posted on 12/19/24 at 9:07 am to mooch1984
FYI chatgpt is amazing at helping with these types of problems.
When you do a Roth conversion, you pay taxes on the current fair market value of the assets being converted at the time of the conversion.
In your scenario:
• You bought 1,000 shares of Stock X at $7 each, so your original cost basis is $7,000.
• The current market value of Stock X is $25 per share, making the total value of your 1,000 shares $25,000.
If you convert these shares from a Rollover IRA to a Roth IRA, you’ll pay taxes on $25,000, the current value of the stock, regardless of your original cost basis.
Key Points:
• The entire $25,000 would be considered taxable income in the year of the conversion.
• The tax rate you pay depends on your marginal tax bracket for that year.
• Once in the Roth IRA, the shares grow tax-free, and withdrawals in retirement are tax-free, assuming you meet the Roth IRA requirements.
When you do a Roth conversion, you pay taxes on the current fair market value of the assets being converted at the time of the conversion.
In your scenario:
• You bought 1,000 shares of Stock X at $7 each, so your original cost basis is $7,000.
• The current market value of Stock X is $25 per share, making the total value of your 1,000 shares $25,000.
If you convert these shares from a Rollover IRA to a Roth IRA, you’ll pay taxes on $25,000, the current value of the stock, regardless of your original cost basis.
Key Points:
• The entire $25,000 would be considered taxable income in the year of the conversion.
• The tax rate you pay depends on your marginal tax bracket for that year.
• Once in the Roth IRA, the shares grow tax-free, and withdrawals in retirement are tax-free, assuming you meet the Roth IRA requirements.
Posted on 12/19/24 at 9:14 am to Enadious
This is not how it works. You don't have to sell the stock to do a "conversion". You would have to sell in a non-qualified account to do a "contribution". But that isn't the question.
You'll pay taxes on the amount you convert (assuming there's no after-tax dollars in your IRA being reported on an 8606).
You'll pay taxes on the amount you convert (assuming there's no after-tax dollars in your IRA being reported on an 8606).
Posted on 12/19/24 at 9:55 am to mooch1984
Keep me posted next time you find another Stock X. Nice gains. 
Posted on 12/19/24 at 12:22 pm to slackster
Someone needs to add that you won't be able to put all $25,000 into a Roth in a one year period.
Posted on 12/19/24 at 1:07 pm to TIGERSby10
There isn't a limit on conversions in a year. You could convert the entire $25k.
Roth IRA contributions are seperate and unrelated.
Roth IRA contributions are seperate and unrelated.
Posted on 12/19/24 at 2:23 pm to TIGERSby10
quote:
Someone needs to add that you won't be able to put all $25,000 into a Roth in a one year period.
Posted on 12/20/24 at 12:24 pm to Enadious
One thing to keep in mind. The tax payment should come out of any after tax money you currently have, otherwise you lose a bit on future Roth gains if you use money you converted.
Posted on 12/20/24 at 1:24 pm to Free888
Thanks for all the replies. I don't want to pay tax on $25,000, so I'll convert something else over like a poster above suggested.
Posted on 12/20/24 at 1:55 pm to Free888
quote:
The tax payment should come out of any after tax money you currently have,
should not shall.
not everyone can do that.
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