Roth IRA account and investment profits???How??

Question

I understand that the max contribution for an Roth IRA account is $4000, but lets say i want to invest that $4000 into stocks and i make a profit from selling my stock shares that same year, am i allowed to deposit my profits into my Roth IRA account? In other words, i contribute $4000 to my Roth IRA in 2006, i invest that money into XYZ company and make $1000 in profit for 2006. I now have $5000 in total($4000 contribution+$1000 of unearned income). Now i want to Desposit that $5000 into my IRA account. Is that allowed?

Answer 1

You need to put the original $4000 into the Roth IRA before you do the trading. Once you put it into the Roth IRA you can trade it however you want under your IRA account and the profits aren't taxed and they don't count against your contribution limits.

Answer 2

If you are age 50 and above, you can put $5,000 into your Roth IRA. But if you are below that age, you can only put $4000.

If you have more to invest, there will be a penalty if you put more than the maximum.

Anyway, I wouldn't invest it all at the same time. I would spread it out over the 12 month period. Put in $333.33/month into mutual funds in the IRA. If you understand dollar cost averaging, you would understand this is the best way to lower the cost per share.

Answer 3

You have already payed taxes on the money that you put into your Roth. You invest from your Roth, and any profit that you make from your Roth investments is not taxable.

Regular IRA accounts contain money that hasn't been taxed, and you will be taxed on anything that you take out of that fund be it original contribution or profits from the investing of that money.

Answer 4

You can sell your stock but you don't "sell" your ROTH IRA. The $5,000 stays within your ROTH IRA. It is just transferred by the broker to a money market account. You do NOT "take the $5,000 out" and "deposit it again. You can then have the broker transfer it from the money market account to another stock, mutual fund, bond,cd, etc.