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Investment account at Fidelity - taxes due w/ stock sales?
Old 02-21-2021, 03:30 PM   #1
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Investment account at Fidelity - taxes due w/ stock sales?

I have had 401ks and 457s and IRA rollovers over the years. I understand there's no taxes due until you withdraw the funds from these types of accounts.
But what I didn't know until recently (yesterday that is after talking w/ Fidelity) is that an investment account I set up using the proceeds of an inheritance (sale of relative's house) was that I would need to pay taxes on stock sales even before withdrawing the money from the Fidelity account. I knew that the dividends were taxable but not the stock sales. I am wondering if there's a way to convert this after tax money from the inheritance/house sale (not at all taxable since it was a stepped up basis) to a Roth so that I can buy and sell as desired w/o taxability. Ugh! I know that I can sell stock that is currently a loss to pair up losses w/ any gains I have. Is the term for this account an Investment Account? Help! I pay close attention to taxable income now that we are retired and our pensions/ss cannot be sheltered from taxes.
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Old 02-21-2021, 03:54 PM   #2
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Congratulations on selling stock that had a capital gain!

You can make Roth contributions, but no more than earned income (and other limitations), but if you only have passive income, contributions to a Roth are "out". You can convert to a Roth if you have a tIRA or 401k, but those kinds of accounts already don't have a cap gain concern.
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Old 02-21-2021, 04:00 PM   #3
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It sounds like you now have an ordinary brokerage account. You will pay taxes on any cap gains that are deposited into that account whether from mutual fund distributions or stock sales. Even though the inherited funds weren't taxed at the time you received them, any money you earn from them going forward is fully taxable.

You can only contribute a Roth IRA if you have earned income and it is below $140K ($208K if married filing jointly), and even then the limit is $6K ($7K if over age 50). Since you are currently retired, it sounds like that's not possible. Since you have rollover IRAs, even a backdoor Roth contribution, which gets around the income limits but not the earned income requirement, wouldn't work for you.

One option is to migrate this money into a fund that is designed for growth and avoids throwing off income and just leave it there. You would take the tax hit as you sell off any of your current investments that have grown, but once the money is reinvested you wouldn't owe any tax until you withdraw from the account.
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