Author Topic: Sell non-IRA stocks/mutual funds and put them in an IRA?  (Read 1510 times)

discodarwin

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Sell non-IRA stocks/mutual funds and put them in an IRA?
« on: August 10, 2015, 12:17:40 PM »
This seems to make sense to me, but thought I'd run it by the upper lip-hair geniuses...

I've got 10k+ in random Vanguard mutual funds/stocks that are not part of an IRA/Roth.  I'm married, and this year I'm thinking we'll probably only get to maxing out my portion ($5500) of the IRA limit based on my job's cash flow.

Which leave me wondering, should I sell some of my mutual funds/stocks that are not tax-protected, up to $5500 and then use the proceeds to max out the $5500 we could add to an IRA?  Seems like that would be a good idea... I may pick a few stocks that are currently losers so that I can claim a loss on them as well...

Seems simple and a no-brainer, but want to make sure I'm not missing anything...
thanks,
D

Gin1984

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Re: Sell non-IRA stocks/mutual funds and put them in an IRA?
« Reply #1 on: August 10, 2015, 12:19:11 PM »
As long you are not buying the same stocks as those you are selling, which will trigger the wash rule, it should not be a problem.

forummm

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Re: Sell non-IRA stocks/mutual funds and put them in an IRA?
« Reply #2 on: August 10, 2015, 12:39:31 PM »
Yes, it can make sense to max out IRAs for both of you, even if it means selling taxable assets to do so. I can't say for certain without more information. But generally putting things in to tax-advantaged accounts is usually better.

seattlecyclone

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Re: Sell non-IRA stocks/mutual funds and put them in an IRA?
« Reply #3 on: August 10, 2015, 02:27:56 PM »
Yes, do avoid selling funds for a loss if you intend to buy back the same funds within the IRA within 30 days (before or after). Transferring funds to a tax-deferred IRA can be a great idea even if you have to realize some gains to do it.

Suppose you're in the 25% tax bracket and you want to fill up your IRA. All you have in your taxable account are shares that have doubled in value since you bought them. You sell $5,500 worth, realizing a capital gain of $2,750. You pay 15% capital gains tax ($412.50) on this sale. You then put $5,500 in your IRA, saving tax on the full sum at your 25% marginal rate ($1,375). This leads to a tax savings of $962.50 even if you have to sell shares that have doubled in value since you bought them! Selling losers will of course be better, provided you avoid invoking the wash sale rule.
I made a blog! https://seattlecyclone.com/

The Roth IRA was named after William Roth, who represented Delaware in the US senate from 1971-2001. "Roth" is a name, not an acronym. There's no need to capitalize the final three letters.

discodarwin

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Re: Sell non-IRA stocks/mutual funds and put them in an IRA?
« Reply #4 on: August 10, 2015, 02:38:35 PM »
Yes, do avoid selling funds for a loss if you intend to buy back the same funds within the IRA within 30 days (before or after). Transferring funds to a tax-deferred IRA can be a great idea even if you have to realize some gains to do it.

Suppose you're in the 25% tax bracket and you want to fill up your IRA. All you have in your taxable account are shares that have doubled in value since you bought them. You sell $5,500 worth, realizing a capital gain of $2,750. You pay 15% capital gains tax ($412.50) on this sale. You then put $5,500 in your IRA, saving tax on the full sum at your 25% marginal rate ($1,375). This leads to a tax savings of $962.50 even if you have to sell shares that have doubled in value since you bought them! Selling losers will of course be better, provided you avoid invoking the wash sale rule.

Awesome, this is what I was banking on  :)  great breakdown!

gergg

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Re: Sell non-IRA stocks/mutual funds and put them in an IRA?
« Reply #5 on: August 11, 2015, 07:05:50 AM »
Another option to consider: You can probably directly transfer the stock without selling it first. Once it's inside the IRA you could sell it tax free and buy whatever you want.  Check with your brokerage.

forummm

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Re: Sell non-IRA stocks/mutual funds and put them in an IRA?
« Reply #6 on: August 11, 2015, 08:01:12 AM »
Another option to consider: You can probably directly transfer the stock without selling it first. Once it's inside the IRA you could sell it tax free and buy whatever you want.  Check with your brokerage.

Selling them first, especially if they can provide capital losses, is probably better. There are no transaction fees for selling Vanguard mutual funds. And even if they provide capital gains, the long term gains are taxed at a lower rate than the deduction OP would get putting them into a TIRA.