Roth Basis of Worthless Stock

Today TaxMama hears from Gary in Oregon who wants to know. “I have asked 2-3 tax professionals the same question with different answers. So mama help me! I have 2 IRA’s. In one IRA I bought a stock 4 years ago that is now worthless. I do believe that some day this could become a performing asset. If I transfer the stock to a ROTH in 2010. Do I use the basis or FMV of the stock for the conversion?”

TaxMama answers a question on Tax

Hi Gary,

What are you doing, taking a poll? You’ll use the answer you want – or the one you get most frequently… or?

That’s an interesting idea. Transfer a stock worth little or nothing to your Roth – and have it rebound. Hmmm…It’s an excellent idea.

However, I don’t think you can transfer stock. Don’t you have to sell it, then re-buy it?

Either way, you’re looking at the fair market value, not the basis, when you are looking at distributions from the IRA. The 1099-R that your administrator will issue will be based on the FMV. Call them and ask them what they will do. Wouldn’t that give you the most definitive answer?

And remember, you can find answers to all kinds of questions about Roth conversions and other tax issues, free. Where? Where else? At TaxMama.com.

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