IRA Rules

Posts Tagged ‘roth ira tax rules’

Question: What are the tax implications for holding ADR stock in a Roth IRA?

I own stock of BP (British Petro) , AIB (Allied Irish Banks), and looking to pick up some E (Eni) which are/will be held in a U.S. Roth IRA account.

How will any future dividends or capital gains be handled since these are foreign stocks? Will they be tax free in conjunction with the rules of a Roth IRA?
@Mike – is there a way to see where a certain stock issued from? Like your RDS example?

Can this be done from a financial site like google finance or yahoo finance, or do you have to dig through the annual report?

Answer: There aren’t any.

Fist off, ADRs — American Depository Receipts — are not foreign stocks, they are US securities issued to cover an equivalent number of foreign securities held by a registered broker. Therefore there are no US implications on holding foreign securities.

US persons and entities, other than registered securities brokers, are generally prohibited from directly holding foreign securities. An American living in Europe for example, must certify that they are not US persons or entities in order to purchase securities from a European dealer. It’s a boilerplate clause in all European securities contracts and nobody checks up on it.

In reality it’s all done with a nod and a wink — I’ve owned foreign shares while living in Europe. I reported the gains on my US returns and paid any taxes due, and took credit for the foreign taxes paid using Form 1116. Thankfully the IRS isn’t permitted to report securities irregularities as long as the taxes are paid. That’s a moot point in your case because ADRs are not foreign securities and because you are holding them in an IRA.

If there are any foreign taxes on the underlying securities those are usually withheld at the source and you receive the net. Otherwise the foreign tax would be paid by the dealer and you again receive the net. However since these are held in a tax deferred account in your case, you cannot claim any credit for the foreign taxes paid. That’s negated by the fact that you receive the net gain after the foreign taxes so it’s largely a moot point.

Since these are US securities held within your IRA there are no tax consequences any more than with any other US security.

The IRA Tax Time Bomb

Roth IRA Tax Rules are somewhat more favorable for higher income earners than traditional IRA Tax Rules. Under Roth IRA Tax Rules, individuals can contribute funds into a Roth IRA account now and withdraw the money tax free later. Roth IRA Tax Rules are different from traditional IRA Tax Rules mainly in two areas: time to withdrawal and tax treatment of Roth IRA contributions.

Many investors open a traditional IRA without considering if a Roth IRA account would be more beneficial. When opening an individual retirement account, you should make sure that you understand Roth IRA Tax Rules. For some, Roth IRA Tax Rules can be complicated to understand. Ask your financial advisor to explain the concept of Roth IRA Tax Rules to you, if you have a financial advisor. Otherwise, there are plenty of resources around, even on this Ira Rules website, to get your familiar with Roth IRA Tax Rules. Understand Roth IRA rules, Roth IRA distribution rules, and Roth Ira Withdrawal Rules help you understand Roth IRA Tax Rules.

Roth IRA tax rules on the conversion of a Traditional IRA to a Roth IRA

Under some circumstances, Roth IRA rules allow the conversion of a Traditional IRA account into a Roth IRA account. The income limit that dictates whether a Traditional IRA can be converted into a Roth IRA account is $100,000 under the Roth Ira Tax Rules. That means, if your income is $100,000 or less, you can do a Roth Conversion or convert your Traditional IRA account into a Roth IRA account legally under the Roth Ira Tax Rules.

The $100,000 Roth IRA conversion rule applies to singles as well as married couples, and you can’t convert an IRA to a Roth at all if you’re married filing separately. For more information about the Roth Ira Tax Rules for converting a Traditional IRA account to a Roth IRA account, see IRS tax Publication 590 Individual Retirement Arrangements, especially page 26.

Roth Ira Tax Rules on deducting IRA losses

When you have losses in your individual retirement account, Roth Ira Tax Rules could come in handy. Many people, however, are confused as to whether they can deduct losses from their IRA accounts under this Roth Ira Tax Rules. The answer is that you can only deduct realized losses under Roth Ira Tax Rules. If your losses in your IRA accounts are not yet realized, then you cannot deduct the losses.

How to deduct realized losses from a Roth IRA account under Roth Ira Tax Rules?

If you liquidate your Roth IRA individual retirement account and end up with less than you contributed, then you have a realized loss. You can deduct that realized loss under the Roth Ira Tax Rules as deductible miscellaneous expenses. Some people think they can deduct Roth IRA losses as capital loss, this is not the case.

Miscellaneous write offs are tax deductible to the extent that they exceed 2% of your adjusted gross income (AGI). For more information on miscellaneous write off tax deductible items, consult IRS publication 529.

Question: Is contribution to a Roth IRA for tax year 2008 tax deductible?

While filing out the tax form I noticed that for explanation for Line 51 (Retirement Savings Contributions Credit (Saver’s Credit) on Form 1040 says “you may be able to take this credit if you or your spouse if filing jointly, make a) contributions to a traditional or Roth IRA

This is the part where I got confused. I thought that Roth IRA is not tax deductible but under letter “a” it says “traditional” OR Roth, which makes me wonder if the rule changed for tax year 2008 (one of Obama’s plans)?

Can someone explain this to me? Thanks!

Answer: The Roth is not tax deductible.

The Retirement Savings Contributions Credit (Saver’s Credit) is a separate credit, if you qualify, that is not connected to the deductiblity of your IRA, 401(k), 403(b), etc.

Roth Segregation Part 1: IRA Tax Law