@TomD8 wrote:
"I wanted to place money in a roth so can I first place in a traditional IRA and then do a Roth Conversion."
Yes, you can do that. What you're proposing is called a "Backdoor Roth IRA." It's a strategy often used by people who want to open a Roth IRA, but whose income is in excess of the allowable amount for making Roth IRA contributions. That "allowable amount" is based on your modified AGI. These limits are well explained on this IRS web page:
https://www.irs.gov/retirement-plans/plan-participant-employee/amount-of-roth-ira-contributions-that...
But this taxpayer has $100,000 sitting in the bank, and you can still only do the backdoor at $6000 or $7000 per year, correct?
@Ethan Tax Question , the first thing you need to process is that the entire stock proceeds aren't taxable income, only the capital gains. The gain is the difference between the sales price and your cost basis. Your cost basis is what you paid for the stock originally. (If the stock was a gift, your basis is what the giver paid, and you could have a real problem on your hands. If the stock was an inheritance, your basis is the value on the date the previous owner died.)
I doubt the entire $100,000 is taxable gain.
Second, remember that long term capital gains (held more than 1 year) are already taxed at a lower rate than most other income.
Third, realize that even if you do a backdoor Roth for whatever amount, it won't change the tax you owe on the capital gains from the sale of the stock. You're stuck with that bill. A backdoor Roth can be used to avoid future taxes, as long as you are prepared to put the money away until you retire.
(Take two scenarios.
a. You keep the $100,000 and invest it in a regular broker account. You will pay some tax every year on interest and dividends, and you will pay long term capital gains tax on the gains only, when you sell. You can sell at any time for any financial need, such as a house or other large purchase, vacation, unemployment, etc.
b. You put the $100,000 in a broker account, and every year you do a $6000 backdoor Roth conversion, gradually depleting the broker account. If you wait until retirement, you won't pay any tax on withdrawals from the Roth IRA. But if you need the money early, you could pay 34% tax on the gains you withdraw (regular income tax plus penalty) instead of 15% long term capital gains tax.)
You should probably consult with a financial advisor.
