individual stock account vs IRA and Roth IRA (tax rates).?

Question

I have a stock account and am looking for the best way to make the most of my return (after tax). If I make 10% return this year (let's say $100) . How much would I have to pay in taxes (what is the rate)? If I converted that account into an IRA or Roth IRA or some other account (can I do that?)...how much would I have to contribute monthly and how much tax would I have to pay at the end of the year (on that return)? If I cashed in early on those IRAs (sold some of the stock and took the cash and bought, let's say, an apartment), what penalty rate would be applied to that withdrawal?

This basically boils down into: Is it better to hold stock in a regular (i.e non IRA etc) account (so I can withdraw $ whenever I need to) and pay tax on that, or hold it in an IRA (or other type) account and then pay the penalty, if I need to withdraw?. Any advice is appreciated. Thanks!

Answer 1

You don't get the privilege of paying taxes on a stock gain until you sell the stock, and when you do, your tax will depend on your tax bracket.

Technically speaking, capital gains are the final dollars in your income, meaning they enjoy the highest tax, while your ordinary income is taxed at the lower brackets.

On the other hand, your IRA benefits will depend on how much you make, too, because of the extra "saver's credit". You can take up to a certain amount out of your taxable income, but you get the bonus of 0%, 10%, 20% or 50% credit in addition depending on your income and marital status.

So you'll have to give us a little more information to be more specific.

Answer 2

If you already own stock, and you sell it, you pay capital gains of 5% or 15% depending on your total income.

You cannot convert your stock to an IRA or Roth IRA.

If you have an IRA or Roth IRA, you pay no tax on the increase in value until you withdraw the money. In the case of a Roth, qualified withdrawals are tax-free.

If you cash in your retirement account early, you pay ordinary income tax on the pretax contribution, plus a 10% penalty.

Finally, if you aren't investing for retirement, don't open an IRA or Roth IRA thinking you will get a tax break by holding it for a few years and then cashing it in early. In your case it would be better to invest after-tax dollars and be taxed on your capital gains.

Answer 3

Hi, a Roth IRA is the best investment on the planet for the majority of people. The younger you are the better. You make contributions after-tax and you can take your principal out anytime without penalty. Earnings are tax free after 59 1/2 so it you have 15-30 years of contributing the maximum then you are going to end up with a nice chunk of money that is tax free in retirement. A taxable account will not generate the same returns because of the taxes you will pay on capital gains and dividends.

Answer 4

Tax rates depend on your total income , not just that account revenue , and you did NOT give us that .

You cannot convert accounts to IRAs . You have to sell the stock , make a cash contribution to the account
(there are annual maximums) then buy the stock you want .
$$$ put into a regular IRA lowers your tax bracket for that year .
$$$ put into a Roth , does not lower your bracket but all gains are tax free going forward.

To withdraw for a real estate purchase before age 60 , would make all $$$$ taxable that year Plus and extra 10% penalty fee .
You should be asking Schwab or someone this ,
Why are you asking yahoo-ets ?

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Answer 5

The long-term capital gains rate for your first $30K in income (after standard deductions and exemptions) is 5%. After that, it's 15%- whether you earn $50K or $50 Million.

Short-term capital gains taxes are treated like ordinary income that you don't have to pay social securities tax on (with a few exceptions).

If you put your money in a Roth IRA, you never have to pay taxes on it, again (if Congress keeps its promise). Additionally, you can always withdraw your original investment.

Example Scenario:

I have $4K in the bank that I want to put in a Roth IRA. I also had $4K in income this year. So, I set up a Roth IRA at Vanguard.com and put $4K in a mutual fund.

Three years later, my mutual fund investment has grown to $6K, and I want to take some money out to buy a house. I can take out my $4K original investment and pay no taxes on it. If I want to take out any more than my original investment before age 60, I have to pay tax + a 10% penalty.

Best Wishes!