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Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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I owned some IRA mutual funds for 25 years totalling about

Resolved Question:

I owned some IRA mutual funds for 25 years totalling about 250K which I bought over time. In 2009 I rolled over 100% to a new broker who bought reinvested in all new companies. However, during 2009 I had some family emergencies and had to sell about 35K worth of the shares. When I compute the capital gains tax, and calculate the average cost per share do I use the date my new broker purchased the new investments? Also, does the 10% early withdrawal tax have anything to do with dates purchased?
Submitted: 7 years ago.
Category: Tax
Expert:  Merlo replied 7 years ago.

Hello Phil,


Please clarify your situation here.


Are you saying that you sold some mutual funds which were part of your traditional IRA account and then withdrew some money from your IRA?


What age were you when the withdrawal occured?



Customer: replied 7 years ago.
Yes, I sold mutual funds that were part of my traditional IRA account. I was 54. However, my question is more about the date I have to use to calculate the average cost per share for my 2009 income tax. It is just a coincidence that I rolled 100% of the traditional IRA over to a new broker in the same year that I enede up having to sell (withdraw cash) some of them.
Expert:  Merlo replied 7 years ago.

Hello again Phil,


Thank you for the clarification.


If these mutual funds were part of your IRA account, then the sale of those funds are not treated as capital gains. Therefore there is no need for you to calculate any cost basis on the shares that you sold.


All of the money that is in your IRA account is tax deferred money, meaning no taxes have every been paid. When you contribute money to an IRA account, you deduct those contributins from your taxable income. You are then allowed to invest the money in that IRA account in mutual funds or stocks or any investment that you wish, and any gains are earnings you have are not subject to tax until such time as you withdraw the funds.


But when you withdraw the funds, the entire withdrawl is taxed as ordinary income and not as a capital gain. You have no basis in the shares that were sold because it was all tax deferred money.


You will receive a 1099-R form from the investment firm sometime this month which will report the total amount of the IRA withdrawal you made. That amount is simply taxed as ordinary income to you and taxed at ordinary income tax rates. In addition, if you were under the age of 59-1/2 at the time the withdrawal was made, the amount withdrawn is subject to an additional 10% penalty.


If this was helpful please press the Accept button. Positive feedback is also appreciated.


Thank you Phil



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