Rethink Your Rollover

Posts Tagged ‘roth ira tax credit’

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Roth IRA tax

Question: How is an increase in value of a Roth IRA taxed?

OK, 6 weeks ago, I had a Roth IRA certificate of deposit (CD) mature. I rolled it over into a Roth IRA with E-Trade. I purches several stocks that I have researched and am confident will increase greatley over the next 18-24 months. All these stocks were all priced under $2.50 each. So if they do recover to prices of 5 or 6 years ago, I could be seeing profits of 20,000 to 40,000 or so.

My question, how is that increase in value taxed?

Answer: Matt, since you already paid taxes on the money before depositing it into a Roth IRA, you do not owe taxes on the earnings if you hold it until retirement. While a traditional IRA is tax-deferred like a 401k and can be funded with pre-tax contributions, a Roth IRA allows you not to pay taxes on the earnings. This is why there are limits on deposits and limits based on your earnings. It is not a complete tax shield, but a way to save for retirement without worrying about actually making money as being something bad.

Personal Investment & Loan Tips : Roth IRA Qualifications