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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121565  
Subject: Re: Esoteric Roth IRA Issue Date: 3/4/1998 9:07 AM
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[[ When you take a distribution from a Roth IRA (I know its a little early to discuss this) make sure
you do it in cash NOT stock. The rules for regular IRA distributions are sketchy, but the best I
could come up with is that if you distribute stock from an IRA the stock's basis is the amount that
was included in your gross income. For a Roth IRA you will not include any amount in your gross
income (is that right) so maybe your basis is $0. Better not be the test case and sell the stock before
you disribute it. Any thoughts?]]

This isn't necessarily my understanding.

Assuming that you have NO basis in your regular IRA (i.e., no non-deductible contributions), the FMV of the shares when you transfer them out will be reported to you on your Form 1099R. And THAT amount will be your cost basis for the shares when you sell them. You'll report the 1099R income in the year that you take the distribution (i.e., pull the stock out), and will report any gain/loss on the sale of the shares when you finally sell them. So your gain or loss on the sale will only reflect the change in the share price from the time that you removed the shares from the IRA.

If you DO have basis in your IRA, the computations are a bit more complex, but the theory is the same.

And while I haven't given much thought to pulling shares out of your Roth IRA, I would think that the same rules would apply. With a Roth IRA (assuming a qualified distribution), the shares would have 100% basis. So your basis for any future gain/loss would be the FMV of the shares when you take the distribution. And since it is a qualified distribution, you would not be required to pay any tax on the FMV of the distribution. It would make no sense whatsoever to apply a -0- basis to those shares of stock.

But, as I have said in the past...making sense and the tax law are mutually exclusive. I've done no research on this, but it is simply a gut reaction. Perhaps others would like to sound off.

TMF Taxes
Roy
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