Can I open a Roth IRA?

[davew9128]

I should have thought of that.

The standard deduction for a person over age 65 is $13,850. Without any other taxable income one can earn up to that amount without paying any tax on it.

You would be amazed at the amount of work and effort people put in to save a single dollar of tax. This thread bring a prime example.

 

[Taxing Matters]

You would be amazed at the amount of work and effort people put in to save a single dollar of tax. This thread bring a prime example.

Right. I frequently remind my clients that saving tax is not the only consideration in a business or investment arrangement or even the most important one. It's useful to save tax where you can, but it should not overshadow other important considerations.

 

[Mark2365]

Thanks for the continuing education, people.

I had only $820 in taxable income in 2019.
So, I guess the Roth idea is out the window.

TaxingMatters, I've been working on an internet marketing thing for several years.
I have hopes and plans for making my next $million, but it ain't a sure thing yet.

I'm now thinking: just put the $5k into a regular brokerage account.
Even if the investments miraculously Double, I'll still pay no tax (because
of the standard deduction), AND I'd then have $5k in capital gains (income),
so I could Then open a Roth with a $5k contribution. Yes?

 

[adjusterjack]

AND I'd then have $5k in capital gains (income),
so I could Then open a Roth with a $5k contribution. Yes?

No.

Re-read post #5.

 

[FlyingRon]

Long term capital gains rate is 0% if you don't make $40K (for singles).

 

[Mark2365]

OK, AdjusterJack. Thanks for having me re-read that part.
Wow. I would have expected the IRS to consider stock market gains as Income.
So, I could make a $30k profit, and still pay $0 in taxes?
That just doesn't sound like the IRS that we all know and (love?).

 

[FlyingRon]

The IRS doesn't decide what is taxable or not. That is determined by Congress in legislation affecting the tax code. The IRS is merely there to process and enforce those rules.

As I stated, long term capital gains are taxed at 0% until you make more than $40K (which albeit includes the gain income). Short term is taxed as ordinary income, as are interest and dividends. AJ's thresholds do indeed apply.

 

[adjusterjack]

So, I could make a $30k profit, and still pay $0 in taxes?

No. Short term capital gains are taxable. If you are going to be trading stocks or options throughout the year you'll have short term capital gains (or losses).

 

[Mark2365]

OK, and Long-term gains are held more than 5-years. Yes?
What if I leave the enormous profits in the account; don't withdraw any of it this year or next year.
Is that Deferred, or is it still a short-term gain?
AND, I could even have a profit of $13k, and still pay no taxes, because of the standard deduction?
Maybe?

 

[Taxing Matters]

OK, AdjusterJack. Thanks for having me re-read that part.
Wow. I would have expected the IRS to consider stock market gains as Income.

Stock market gains are income. The problem in relation to a Roth is that you need taxable compensation, and compensation refers to income from working, either as an employee, self-employment, etc. Capital gains are not income from working.

 

[adjusterjack]

Long-term gains are held more than 5-years. Yes?

No. More than 1 year.

What if I leave the enormous profits in the account; don't withdraw any of it this year or next year.
Is that Deferred, or is it still a short-term gain?

Still a gain, even if you leave it in the account.

AND, I could even have a profit of $13k, and still pay no taxes, because of the standard deduction?

Yes.

I think you are missing a bet here. Your Krugerrands may be a better long term investment than playing the stock market. Take a look at the first chart and note how well Krugerrands recovered after last month's crash compared to the next three charts for the stock markets.

https://www.monex.com/prods/gold_krug_chart.html#1year

https://finance.yahoo.com/quote/^GSPC?p=^GSPC

https://finance.yahoo.com/quote/^IXIC?p=^IXIC

https://finance.yahoo.com/quote/^DJI?p=^DJI

Besides, $26,000 is barely an emergency fund and shouldn't be risked on high risk endeavors like the stock market. You could lose that $26,000 in a heartbeat if you make the wrong move.

 

[Taxing Matters]

OK, and Long-term gains are held more than 5-years. Yes?
What if I leave the enormous profits in the account; don't withdraw any of it this year or next year.
Is that Deferred, or is it still a short-term gain?
AND, I could even have a profit of $13k, and still pay no taxes, because of the standard deduction?
Maybe?

Let me use stocks as an example. If I bought stock in XYZ corp in 2008 for $5,000 and still hold it today there is no tax yet on whatever gain I have in the stock because I've not yet sold or transferred it. But let's suppose I then sell the stock tomorrow for $8,000. That gives me a capital gain of $3,000. That capital gain is a long term capital gain because I have held that stock for more than one year. Long term capital gains are taxed at lower rates than regular income. The tax rate I pay on that capital gain is determined by adding that gain to my other income for the year. If I'm single at the end of 2020, then if my total income is $40,000 or less then my long term capital gains are taxed at 0%. As your total income goes up, your long term capital gain on the stock starts getting taxed at higher rates, but caps out at 20%. So the taxation of long term capital gains is very favorable. You aren't taxed on the gain until you sell the stock and as long as you held it at least a year you get those favorable long term capital gains rates.

So for you, if you're going to have total income (including your gains) less than $40,000 (and that cap will go up based on inflation each year until at least 2025 when the Trump tax act sunsets) you'd not have any tax to pay on your long term capital gains.

And if your total income is less than the standard exemption for the year, even your ordinary income wouldn't result in any tax.

 

[Mark2365]

First,. . . Wow. The information that yous guys are giving here is Magnificent. Thanks!

AdjusterJack, many years ago, I was Series-7 (stock broker) licensed , and I am refreshing my knowledge of how the vehicles work.
Might even go with Binary options: haven't yet studied enough about them.
Planning on buying Put Options on specific companies that I think will tank because of this covid19 thing.
I think some companies will Gain (like Amazon and Netflix) and some will crash
(like buffet restaurants and smaller retail clothing stores and travel).
JCPenney is now considering BK, W. Buffet recently sold all of his airline shares.

Yes, I started buying Krugs three years ago when gold was around $1250, and it's today at $1703.
While I agree with you that gold will continue to appreciate, this is just another bet.
Only $5k, not all $26k.

Still a gain, even if you leave it in the account.

there is no tax yet on whatever gain I have in the stock because I've not yet sold

Is there a difference between STOCK holdings and OPTION holdings?
Option contracts Can expire in. . . anywhere from days to Years.
Ooohhh. . . maybe that's the key: when I CLOSE the contract determines if it's Short-term or Long-term gain?
Mark2365

 

[FlyingRon]

Is there a difference between STOCK holdings and OPTION holdings?

In what regard. First, if you're talking about doing it within an IRA, you can do that, but you have to have it held by an institution that permits option trading.

As for taxibility, the option becomes taxable when you either sell it (without exercising it), or when you sell the stock the option is for the difference between the buy and sales price is your gain (you subtract out any commissions and what you paid for the option right). You may wish to read this: https://www.investopedia.com/articles/active-trading/053115/tax-treatment-call-put-options.asp