In 2010 when I can convert my IRA to a Roth, what type of tax will I have to pay on it if I own stocks?

Question

Will it be taxed at my income level or will I pay capital gains tax?

Answer 1

You will be taxed as ordinary income. I do not know exactly how the converstions are going to work but typically it works like this.

For 2010 only you can elect an option to recognize 1/2 your roll over amount in 2010 and 1/2 in 2011. This will help if you cant afford to do it at once.

You will have to come up with the money to pay the tax on the roll over as you can't use the roth funds to do so. I would get a CPA for at least that year to help you and give you decent tax advice for this issue.

Answer 2

When mine was rolled, I had to sell the stocks to move the cash. The cash becomes taxable income the year it is moved. If you try to move a whole IRA in one year you will have an ugly tax bill . As that is 3 years away, I recommend moving it 1/3 of the value at a time, unless you have a particular year of low income - then move more that year.
The point of the Roth is that gains are not taxed so waiting until 2010 means you are loosing to taxes 3 extra years . . . maybe move some now ?

Answer 3

The total value of the converted IRA will be taxed as ordinary income. The concept of capital gains does not apply to any type of IRA.