WDRP in an IRA or Roth IRA

We have no idea where the price per share (pps) of WDRP is going to go to.  In my opinion, it will not be at .03 for long.  Once we: get the long awaited efficiency numbers, Wanderport confirms a product for the industry trade show, and the new website is unveiled, this pps could go up to 07-10 cents quickly.  From there, if Wanderport introduces their many different products and turns into a bonafied manufacturer of appliances to the mass public, we have no idea how high the pps will go.  My reason for bringing this up is that I believe there is an opportunity for a lot of money to be made, which definitely calls for tax planning with your tax advisor.  How long you own your shares and what kind of account you hold them in are two important things to think about.

Ask yourself, how you want to be taxed upon selling your shares? 

Long Term and Short Term Capital Gains are determined by how long you owned the shares before you sold them.  Should you sell within a year of buying the stock you will pay short term capital gains, which are your normal tax rate.  If you hold this for over a year then the long term capital gains rate is 15%. (in 2013 that long term rate goes up to 20%)  That one is pretty easy.

Deciding what kind of account you hold your shares in is important:

If you buy the shares in a Roth IRA you have used money that is already taxed.  The benefit is that when you are 59 1/2, you get to take distributions out tax free.  (If you are under 50, your Roth IRA contribution is lower than if you are over age 50.  So check with your accountant or financial advisor to make sure what is right for you.)  If you do this, don't plan on taking a distribution from this account until you are at least 59 1/2.  An example of this would be: Buy 50,000 shares, at .03 cents per share this would be a Roth IRA contribution of $1500.  If in the future this share price went from three cents (.03) to fifty cents (.50) your $1500 would now be $25,000.00.  You would now have $23,500 in gains which would be a tax free distribution at the proper age (59 1/2). 

If you have been buying these shares in a Traditional IRA, you have the option of converting that Traditional IRA to a Roth IRA (Roth Conversion).  Your Traditional IRA money has not been taxed yet.  Whether you have your own Traditional IRA or you rolled over money from a 401k from a past employer, this money was put into the account tax free, and it grows tax free.  However, when you reach  59 1/2 and can start distributions, this money will be taxed at the proper tax rate for your income level. 

Should you do the Roth Conversion, your $1500 contribution from our last example, would be taxed this year at your current tax rate. (to be figured in your taxes at the end of the year)  Let's use a tax rate of 33% to make it easy.  That would be $500 dollars in taxes you would pay now.  No matter what the share price goes to this year, you pay the taxes on the amount your account was worth when you did the conversion, or again, for our example $500.  Now, lets imagine everything goes great with the company and the share price goes to fifty cents.  Your Fifty Thousand shares would now be worth $25,000.00.  Having done the conversion, you would have paid taxes on the $1,500, which was $500 and you can now take the money out tax free upon retirement.  If your money was in a traditional IRA and we used the same situation, the tax on your $23,500.00 in gains at a generic 14% tax rate would be taxed around $3,290.00.  In this hypothetical situation, you would save about $2,790 by Converting your Traditional IRA to a Roth.

Because of the possibilities of share price growth, I believe you could save a lot of money with the proper tax knowledge.  I am not a tax advisor, and this general discussion is not meant to be tax advice.  Use this information to talk with a professional tax advisor who knows your financial situation and can give you specific tax advice based on that.