Taxes for Stocks

[wirm]

Hi guys, I've got a question for you about stocks. Say I want to make a couple extra bucks with my ROTH IRA. I would buy a load of cheap stocks and then sell it when it goes up by a couple pennies.

For example, say I buy 10,000 shares of a $5 stock and it goes up 10 cents. Then I sell it for a $1,000 profit.

Do I just pay taxes on that $1,000 or on the whole $51,000 sale (10,000 shares of $5.10)?

Thanks

 

[DesiPower]

IIRC, you dont pay squad unless you withdraw?

 

[her209]

How do you buy penny stocks with a Roth IRA account?

 

[darkxshade]

Please do yourself a favor and educate yourself on investing.

To answer your question, you pay taxes on your realized gains(your profit/the $1000) though since you're talking about your Roth IRA, it's a bit more complex and I suggest you do your own research as to not screw up your retirement.

 

[spidey07]

Normal stock deal would be short term gains tax on the profit = your normal tax rate. IRA you aren't taxed on gains until withdrawl.

 

[Gooberlx2]

In your scenario, if you took out all the funds, you'd pay taxes on the $1000 profit.

Besides, that's not the kind of thing you do with a ROTH IRA anyway.

 

[Possessed Freak]

My Roth made 60% earnings 2 years ago when I put it in the market (was prior in a horrible savings account) when the Dow was at 8200. I did not see any tax ramifications of that. If you withdrawal it (ie emergency usage or whatnot), then you have to file a 1099R.

 

[iGas]

You paid tax on the realized gains as mentioned above minus the transition fees.

 

[wirm]

ok, thanks for the info

 

[HardcoreRobot]

for the record, that is a terrible terrible idea

 

[dullard]

With the Roth IRA, you have already paid taxes on money in that account. The advantage of the Roth is that you get to withdraw the money tax free (in most cases) if you wait until you are the right age. Any gains or losses in the Roth are thus usually yours to keep fully.

That is, unless people get the fair tax (or similar national sales tax) finally passed, then you'll pay taxes on the whole thing again when you spend it.

The real question is why do you want to risk $50k just to possibly gain $1k. Would you bet $50 in Vegas with the chance that you might win just $1 of profit? If not, then your idea isn't well thought out. The main reason to have a Roth is to hold on to stocks for years/decades until that $50k grows to $500k (or more, from stock gains but often mostly from dividends) and it is all yours to keep tax free. Don't settle for just $1k of gains.

 

[bruceb]

There are no capital gains taxes no any investment in a Roth, 401K or IRA account.
Now wether or not you want to risk having certain stocks in it, is up to you.

 

[kranky]

I wish people who don't know the answers would stay away from questions like this.

 

[BeauJangles]

for the record, that is a terrible terrible idea

This x10000000000000000000000000

 

[dullard]

I wish people who don't know the answers would stay away from questions like this.

Too much in this thread that needs to be corrected?

DesiPower: you don't pay at all with a Roth as long as you follow the rules.

her209: $5 isn't a penny stock. It is easy to buy individual stocks in a Roth.

darkxshade: you are misleading simply because this thread is about Roth (so why mention non-Roth capital gains?).

spidey07: No, with a Roth there is no tax.

Gooberlx2: No, with a Roth there is no tax.

iGas: No, with a Roth there is no tax.

bruceb: There are income taxes on gains in an IRA and a 401k.

 

[kranky]

I was not talking about the correct answers.

 

[LucJoe]

Hi guys, I've got a question for you about stocks. Say I want to make a couple extra bucks with my ROTH IRA. I would buy a load of cheap stocks and then sell it when it goes up by a couple pennies.

For example, say I buy 10,000 shares of a $5 stock and it goes up 10 cents. Then I sell it for a $1,000 profit.

Do I just pay taxes on that $1,000 or on the whole $51,000 sale (10,000 shares of $5.10)?

Thanks

No tax.

The whole idea of a Roth is you pay tax on the money before putting it in. All money in the Roth (including interest) is taken out tax free when the time comes.

 

[ichy]

A simple wikipedia search for Roth IRA would have answered this for you.

 

[wirm]

I know that $5 stocks aren't all that safe, but there are plenty of big-name companies at that price.

I am aware that ROTH IRAs are supposed to be for long-term investments. But how is it a bad idea to make small profits here and there when you can?

 

[Schfifty Five]

I know that $5 stocks aren't all that safe, but there are plenty of big-name companies at that price.

I am aware that ROTH IRAs are supposed to be for long-term investments. But how is it a bad idea to make small profits here and there when you can?

Because it's riskier to do that and to me it seems like you want to reduce risk with your retirement accounts.

 

[crownjules]

I know that $5 stocks aren't all that safe, but there are plenty of big-name companies at that price.

I am aware that ROTH IRAs are supposed to be for long-term investments. But how is it a bad idea to make small profits here and there when you can?

It's not a bad idea if you are knowledgeable. If you want to actively manage your Roth IRA then that is your choice. Others (most people) don't have the acumen to do that and so they just put their money into funds/ETFs and let others that are paid to do it manage their funds.

 

[Gooberlx2]

But how is it a bad idea to make small profits here and there when you can?

Nothing wrong if you buy/sell and keep it all within the account (I don't have the knowledge or desire to micro-manage my account like that). Look to a mutual fund or a trading account instead if you intend to divest that money early, or suffer penalties.

spidey07: No, with a Roth there is no tax.

Gooberlx2: No, with a Roth there is no tax.

iGas: No, with a Roth there is no tax.

I think we all knew that, but the OP's scenario seemed more suited for a regular trading account. I was addressing it in that regard.

 

[dullard]

I am aware that ROTH IRAs are supposed to be for long-term investments. But how is it a bad idea to make small profits here and there when you can?

The problem is that most people don't do it well. You may be different. You may be so skilled that you can time it right. You may be nearly flawless in your execution moving from one overvalued stock to the next undervalued stock. Of course, if that describes you, then why are you dinking around with a $5000/year Roth instead of making $2 billion/year with your hedge fund.

There are tons of studies like this one: The average fund gained 12.5% while the average investor in those funds lost 2.2%. Why? Because they thought they could make small profits here and there.

 

[bruceb]

I never said there was no Income Tax ... I said there are No Capital Gains Tax in an IRA / 401K or a Roth account. And since he has a Roth, there are no Income Taxes on withdrawal, as tax was assessed at the time of the contribution to the account.

 

[dullard]

I never said there was no Income Tax.

That is all that you had correct though. There are no capital gains taxes, but there may or may not be income taxes. To simply state one without mentioning the other is folly.

That is like me saying there are no poisonous snakes in my car just before you walk in. Then later I say, we'll I never said anything about hungry man-eating lions. The snake statement was rediculous knowing that a lion was inside.

Same goes with you saying there are no capital gains taxes but never mentioning the income taxes on 401Ks, an IRA, etc.

And since he has a Roth, there are no Income Taxes on withdrawal

True, but only if he meets the critera (age 59.5+, disabled, dead, buying a home AND had the Roth for at least 5 years or a few other exceptions). You can't open a roth at age 57, then withdraw at age 60 and have it be tax free.