I want to thank Pete for his post #18528 and a follow-up post from JFM #18553.I was busy with visitors for a week and had no time to do anything about a Roth until today. In re-reading the posts and looking at the situation with a Roth it became very clear that this is an absolute must do situation. So I went ahead today and converted what I felt I could pay in taxes next year.
Then I realized what was really being said went further than what I thought. So I had more conversations with my account custodians to confirm the thesis. On Monday I will be converting 3 other IRA accounts to Roth IRAs - the 3 accounts I cannot afford to pay taxes on next year.
Why would I do that? In case it is not clear why I would convert the accounts when I cannot afford the taxes, re-read Pete's and JFM's posts. Call it insurance in case the price rises or falls. If it rises I pay the taxes (as Pete noted) from hopefully massive gains and do so on a low SP basis linked to the date of conversion. If the SP falls (as JFM noted) you recharacterize back to a regular IRA and are protected from being taxed on an asset that has now lost value. If the SP stays about the same, I recharacterize it back to a regular IRA too as I cannot afford to pay the taxes on all the accounts in one year. So in a very real sense you are protected no matter what happens.
It will be very important not to miss the recharacterization deadline should that be necessary, which, for me will be April 15, 2016 or in October 2016 if I file an extension. After that I am out of luck as far as recharacterization goes.
One point - if you want to use Roth funds to pay taxes on a big gain you must (with a few oddball exceptions)have had a ROTH IRA (any Roth IRA, it does not have to be the one just opened) for 5 years and be 59 1/2 years old. Otherwise, you are likely taking an unqualified distribution and will pay a penalty. In my case I have an old Roth that is about 20 years old and am older than 59 1/2 but that will not be the case with everyone.
I advise you check with a tax advisor as to your own situation and not just rely on posters on this board. But for my situation Pete and JFM are right - you need to look into this, and that is regardless of where the share price may end up when the taxes come due. I had never thought about using the Roth as an insurance policy regardless of the outcome on SP and had squirmed with the amount of taxes that would be due when added to my other sources of income. But this is just too good to pass up. FWIW!
