Author Topic: Funding a Roth 401k with index fund shares I already own  (Read 342 times)

GOFU

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Funding a Roth 401k with index fund shares I already own
« on: February 03, 2018, 12:03:42 PM »
I want to fund my individual Roth 401k. Let's say $20k. Let's say it's held at Vanguard.

Question 1: I understand I can fund a Roth 401k with $20k worth of shares I already own in a taxable account. Is that correct?

Question 2: The price of the shares I want to move into the 401k is higher than when I bought them, so I have unrealized LTCG in those shares. If I move those shares from the taxable account to the Roth 401k is that a taxable event? I mean, could that be considered a "sale" of those assets or otherwise trigger LTCG tax liability now?

Could this affect the non-taxability of the qualified distributions from the Roth 401k?

I could just buy $20k of new shares to fund the Roth 401k. But my idea is to move the existing shares with the lower basis and unrealized gain into the tax-advantaged account and shield the gains by later taking them as qualified distributions.

How about it?


Nate79

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Re: Funding a Roth 401k with index fund shares I already own
« Reply #1 on: February 03, 2018, 03:00:11 PM »
You can not fund tax advantage accounts like 401k and IRA's with securities in taxable accounts. They must be sold first and then transfer the cash.

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GOFU

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Re: Funding a Roth 401k with index fund shares I already own
« Reply #2 on: February 03, 2018, 03:29:45 PM »
You can not fund tax advantage accounts like 401k and IRA's with securities in taxable accounts. They must be sold first and then transfer the cash.

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Can you cite me to a source?

Nate79

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Re: Funding a Roth 401k with index fund shares I already own
« Reply #3 on: February 03, 2018, 03:43:42 PM »
You can not fund tax advantage accounts like 401k and IRA's with securities in taxable accounts. They must be sold first and then transfer the cash.

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Can you cite me to a source?
I'm sure there are references but you can ask Vanguard yourself. The gains are taxable period.

There are thousands of references that this is not allowed for IRAs.

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MDM

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Re: Funding a Roth 401k with index fund shares I already own
« Reply #4 on: February 03, 2018, 09:24:44 PM »
You can not fund tax advantage accounts like 401k and IRA's with securities in taxable accounts. They must be sold first and then transfer the cash.

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Can you cite me to a source?
One can start with the title of subsection (k) of section 401 of the US code: (k) Cash or deferred arrangements.

That's where "401(k)" plans get their name.

TaxGuru

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Re: Funding a Roth 401k with index fund shares I already own
« Reply #5 on: February 04, 2018, 01:29:29 PM »
You can not fund tax advantage accounts like 401k and IRA's with securities in taxable accounts. They must be sold first and then transfer the cash.

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Can you cite me to a source?

IRC 408(a)(1) - generally "no contribution will be accepted unless it is in cash". I am not aware of any instances where you can transfer assets in-kind to an IRA or 401k from a taxable account.