capital gains on a ira conversion
i want to convert a tira to i roth ira but have heard that you have to watch when you start a new account because there may be a capital gain in the fund that they will charge you for although you didn’t recieve the gain. should i convert before or after the capital gain declare.
Permalink Submitted by Clyde Wolf on Thu, 2008-11-13 22:03
Scooper722,
It is not clear to me if you are referring to a capital gain distribution in the TIRA or in the ROTH. But your ROTH could be in the same fund as the TIRA so I do not see why you would not receive the distribution.
IRAs of all types are tax advantaged accounts. There are no records kept as to capital gains or losses in your IRAs. The net value of your IRA is reported.
Your concern better fits a taxable account. In a taxable account, it is possible to buy a mutual fund a few days before the fund issues a distribution. You pay a higher price for the fund, receive the distribution and your fund share price decreases by the amount of the distribution. You also now have a tax bill to pay based on the distribution amount. If you reinvested the distribution into your account, you also have some additional MF shares so that your overall investment has not changed (except for market fluctuation).
In an IRA the mutual fund distribution would also buys additioanl shares and your IRA balance would not have an immediate change.
Permalink Submitted by Alan Spross on Fri, 2008-11-14 06:02
A related issue could result in conversion of stocks prior to the dividend payment and post ex dividend date. If you are reinvesting dividends, you would then end up with fractional shares in the TIRA that will not go to the Roth IRA. You would probably either sell those frational shares in the TIRA or if you were going to do another conversion within several months, then convert the fractional shares later so that entire holding would be in the Roth. In the usual case of a cash dividend, this does not matter.