Question:
I'm actively trading some stocks through a personal account with an online brokerage, however, in the next few years I might cash out those stocks and buy into a mutual fund. Are there steps I can take now to limit my exposure to future taxes based on my plan? Steps such as purchasing the stocks through a specific type of account, retirement or some other type? I'm not familiar with taxes, so bear with me.
Answer:
Should have opened a Roth IRA.
A Roth IRA is the best way you will never owe any taxes on any profits or income.
I'm an accountant. There's not much you can do now about the taxability of the stocks you already own. You'll have to pay the capital gains tax on them. Going forward, you should put the maximum amount $4,000 single, $8,000 married, into a Roth IRA. This is an after tax contribution and all future earnings are free from both state & federal tax. If you want to limit your taxes on future mutual fund investing, invest in a municipal bond fund. The yields are less, but the earnings are also tax free.
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