What is the tax implications of selling a stock in a Roth IRA that has a current value of $1500 and a cost basis of $1,000.

[dmbornstein]

    I forgot to say, that I will be taking out the proceeds from this sale.  Thanks.

[Opus 17 · Accepted solution]

Buying and selling stocks in the Roth IRA has no tax impact at all.

Taking money out of the IRA is the only time it has tax impact, no matter what internal transactions generated the money.

If you are over 59-1/2 and the Roth has been opened at least 5 years, you can withdraw money from a Roth with no taxes or penalties.

If you are under 59-1/2, you can withdraw up to the amount of your original after-tax deposits in the account without tax or penalty.  If you withdraw earnings, you will pay ordinary income tax plus a 10% penalty if you are under age 59-1/2 or if you are over 59-1/2 but the account is less than 5 years old.

For example, if you are 35, and funded the Roth IRA with $5000 of deposits, you can withdraw up to $5000 without penalty, no matter what the account is currently worth or how its investments performed.  But if you funded your current account with $1000, and are closing it out, you will owe income tax plus a 10% penalty on the $500 of earnings, unless you are both over 59-1/2 AND the account is at least 5 years old.

[dmertz]

It isn't clear whether the $1000 that you are referring to as "cost basis" is the purchase price of the stock or the amount that you contributed or converted to the Roth IRA.  Stocks held within a Roth IRA do not have a capital cost basis; the amount that your Roth IRA paid to purchase the stock is irrelevant.  What you do have is contribution basis and conversion basis in all of your Roth IRA accounts in aggregate and it's the contribution and conversion basis that determine whether or not your Roth IRA distribution will be taxable as Opus 17 describes.  The taxable portion of any distribution from an IRA is taxable as ordinary income.

[RayNg]

The take away is you can buy stocks in your ROTH account and not be taxed. So if you bought $1,000 worth of stocks, and it becomes $100,000 then you keep every penny of that profit - AFTER you meet all that age and holding period requirement whatever they are. At least this is how I understand it in PLAIN ENGLISH.