Contributions to your IRA must be made in cash.
http://www.irs.gov/publications/p590a/ch01.html#en_US_2014_publink1000230371
If you sell the IBM stock and turn around and contribute some of the proceeds to a traditional IRA you may be able to deduct the contributions from your taxable income.
http://www.irs.gov/Retirement-Plans/IRA-Deduction-Limits
Yes, this is correct. For a more concrete example:
Suppose your salary is $50,000. Suppose you own some shares of stock that you purchased for $50.
If you sell no shares and contribute nothing to an IRA, you pay tax at your regular rate on your $50,000 salary income. Simple.
If you sell 50 shares for $100 each, you get $5,000 from the sale and realize $2,500 of capital gains income. You would then pay regular tax rates on $50,000 worth of income, plus capital gains tax on $2,500 of income.
If you then contribute $5,000 to an IRA, you get to deduct $5,000
from your regular income. This means that you'll pay regular tax rates on $45,000 worth of income, plus capital gains tax on $2,500 of income. This will result in lower tax than the first scenario, where you sell no shares and make no IRA contribution.
You'll pay
even less tax if you can manage to make an IRA contribution without selling shares, but even if you have to sell shares to do it you'll likely pay less tax than if you keep your existing stock and don't max out your IRA.
Whether you should own large quantities of a particular stock is a separate conversation. My general opinion is that if you find yourself owning more of a stock than you want, you should probably sell some of it without concerning yourself too much with the taxes. Taxes are sometimes the price you have to pay to make your portfolio more diverse. Best to avoid getting yourself into a non-diverse situation to start with, but since we don't have a time machine it's often best to pay a bit of tax and move on, rather than double down on that non-diverse investment by continuing to hold it indefinitely.
