Does Selling Stocks in an IRA Count as Income?

The Internal Revenue Service allows you to make most types of stock and other securities investments using traditional or Roth individual retirement arrangements. You can’t buy foreign stocks or borrow money to make stock investments from these accounts, however. Both traditional and Roth IRAs are tax-advantaged accounts, and this affects the tax status of your stock investments.

IRA Investments

When you invest in stocks or anything else using a traditional or Roth IRA, investment earnings are not taxed as long as the money remains in the account. This includes dividend income from stocks and profits you realize when you sell shares. Since earnings are not taxable, they are not counted as income by the IRS and you do not report them on your tax return. Profits from selling stock and other funds in an IRA may be taxable when you withdraw the funds.

Tax Rates

Money you withdraw from an IRA is sometimes -- but not always -- taxable. When it is, you pay ordinary income taxes at your marginal tax rate. The marginal rate is the highest percentage that applies to any of your income. For example, if your marginal rate is 28 percent, you pay 28 percent on all taxable withdrawals from an IRA, including profits from stock sales. Stock profits in an IRA do not qualify for lower long-term capital gains tax rates.

Traditional IRA Taxes

When you withdraw money from a traditional IRA, it is considered income and is taxable. Taxes are due in the year the money is withdrawn. Any taxes due on profits from the sale of stock in the IRA are due at that time, not in the year the shares were sold. You are supposed to leave the money in the account until you are 59 1/2 years old. If you take it out before then, an additional 10 percent penalty tax may apply.

Taxes and Roths

If a withdrawal from a Roth IRA meets IRS rules as a qualified distribution, the money you take out is tax free, including gains from the sale of stock. Distributions are qualified if the account is five years old and you are 59 1/2 years old, disabled or use the money to fix or buy a first home. If you withdraw money that doesn’t count as a qualified distribution, it is taxable in the same way as a withdrawal from a traditional IRA and may incur a 10 percent penalty tax for early distribution.