Roth Cost Basis
On 1-2-14, I rolled a stock exiting Chapter 11 from a traditional IRA into a Roth, with the old shares being distributed into the new company shares in intervals over the next few months. Is my cost basis for the Roth the closing price of the new stock on 1-2-14 multiplied by the number of new shares that I eventually will accrue in the Roth, or do I average the closing prices on the actual distribution dates? In addition, I will be over 59 and a half by 2015 (when I have to pay taxes on the Roth cost basis) and have other Roth accounts that I opened sixteen years ago. Can I use the older Roth in lieu of the five-year period, or does each Roth have its own five-year clock for the earnings? Thanks ahead of time for answers.
Permalink Submitted by Alan - IRA critic on Fri, 2014-02-21 00:35
The 5 year period starts with the year of your first Roth contribution. All your Roths will be fully qualified and tax free the day you reach 59.5. On the subject of Roth cost basis, the shares prices are totally immaterial. Your Roth basis is simply the value of your regular contributions and conversions on the day contributed to the Roth IRA, so all trading, splits etc are immaterial whether before or after the date of the Roth contribution. The 1099R you will receive for the conversions will indicate the value upon conversion in Box 1, but the entire conversion will not be taxable if you had basis in your TIRA from non deductible contributions. Those would have been reported on Form 8606 in the year you made those contributions. For tax purposes all your Roths are considered as one combined account. Once you hit 59.5 all these details will be moot, and you will no longer need to know the amount and year of your regular contributions and conversions.
Permalink Submitted by Garland Parsley on Fri, 2014-02-21 00:45
Thanks Alan,That sounds fantastic.Have a great day,secregar