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Are capital gains in a self-directed Roth taxable or not? If so, when?
I read two posts addressing this question; one said "no, they are not taxable, ever" and another said "Yes, they are taxable at withdrawal". Which answer is correct? Do I have to keep track of the capital gains in the Roth and of my contributions separately? If I do a lot of trading, that could become a nightmare.
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Are capital gains in a self-directed Roth taxable or not? If so, when?
I read two posts addressing this question; one said "no, they are not taxable, ever" and another said "Yes, they are taxable at withdrawal". Which answer is correct?


Assuming you keep the Roth in place until withdrawls are allowed, you will not pay tax on Roth withdrawls. That's the big plus for them. Even if you do make a withdrawl that is taxable, it will be ordinary income, not capital gain.

Do I have to keep track of the capital gains in the Roth and of my contributions separately? If I do a lot of trading, that could become a nightmare.

No need to track you capital gains in a Roth (or traditional for that matter) IRA. You should, however, keep track of the amount you have contributed to your Roth IRA's over the years. If you ever need to make an early withdrawl, you can take out the amount of your contributions before any earnings. This will keep the taxes and penalties down as much as possible.

--ptheland
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<<Are capital gains in a self-directed Roth taxable or not?>>

As pointed out in previous posts..they could be...if you take them out "early". Or they could be completely tax free...if you follow all of the rules.

<<I read two posts addressing this question; one said "no, they are not taxable, ever" and another said "Yes, they are taxable at withdrawal".>>

Again...it depends.

<< Which answer is correct?>>

Both...depending upon the circumstances.

<< Do I have to keep track of the capital gains in the Roth and of my contributions separately? If I do a lot of trading, that could become a nightmare.>>

Nope...if your distributions ARE taxable, they'll be taxable at ordinary tax rates. Things such as "holding period" and "long or short term gains" have no real meaning in a Roth account.

You can read more about when (or if) Roth distributions are taxable in my multi-part post on that very issue in the Taxes FAQ area...and also in The Motley Fool Investment Tax Guide 2000.

TMF Taxes
Roy
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