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Individual stock sold in Tax deferred IRA

Posted: Wed Oct 09, 2019 9:19 pm
by jsm1708
Hello everyone. I absolutely love reading the posts on this site, and am truly impressed by the knowledge of the members here.
I have a question: If you hold an individual stock in a tax deferred IRA and sell the stock but keep the money in the IRA transferring it into a Vanguard fund, how are the potential capital gains taxes that the stock may have accumulated handled?

Re: Individual stock sold in Tax deferred IRA

Posted: Wed Oct 09, 2019 9:21 pm
by RickBoglehead
There are no taxable gains on an IRA. You pay tax on everything you withdraw when you withdraw it.

Re: Individual stock sold in Tax deferred IRA

Posted: Wed Oct 09, 2019 9:26 pm
by Alan S.
jsm1708 wrote:
Wed Oct 09, 2019 9:19 pm
Hello everyone. I absolutely love reading the posts on this site, and am truly impressed by the knowledge of the members here.
I have a question: If you hold an individual stock in a tax deferred IRA and sell the stock but keep the money in the IRA transferring it into a Vanguard fund, how are the potential capital gains taxes that the stock may have accumulated handled?
There are no cap gains in a tax deferred account such as an IRA. Current taxes are due only when money is taken out of the IRA account, and taxable distributions are reported as ordinary income. If you have IRA basis from non deductible contributions, Form 8606 will calculate the taxable portion.

Of course, if the markets are kind to you over time, you will accumulate a higher IRA balance. Then when RMDs begin at 70.5 your RMDs will be larger and you will be taxed on the RMDs.

"Tax deferred" means exactly as described. You do not pay any current taxes on transactions that remain with the IRA wrapper. You only pay when you pull the money out, and that becomes mandatory at 70.5.

Re: Individual stock sold in Tax deferred IRA

Posted: Wed Oct 09, 2019 9:45 pm
by jsm1708
Alan and Rick thank you for the reply. That makes perfect sense. My wife asked me that, and that is what I was thinking, but I wanted to ask my thousands of Boglehead advisers first. :D