Author Topic: Selling from Taxable account to Invest in Roth  (Read 1264 times)

catccc

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Selling from Taxable account to Invest in Roth
« on: March 14, 2023, 12:47:36 PM »
I am in the process of making Roth contributions for the year.  Iíve been using excess cash as I get paid to do this YTD.  I have plans to start holding cash for another purpose, but I want to make sure I max out our tax advantaged accounts while I put aside cash. I have $300k in taxable investments.  My plan is to liquidate from the taxable account and contribute to the IRA on the same day for the same equities.  The end result will be that I hold the same number of shares, but with a different basis than before.  I understand that this move would trigger wash sale rules if I post any losses, but I donít plan to sell any lots that generate losses.  Also, since Iím buying and selling the same day, who cares what the price of VTSAX is at the time, right?  I have sufficient cash on hand that I wouldnít need to wait for the sale to settle before initiating the contribution.

Check my thought processÖ is there any disadvantage to this or other considerations to think about before I initiate transactions?

bluecube22

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Re: Selling from Taxable account to Invest in Roth
« Reply #1 on: March 18, 2023, 12:53:33 PM »
I'm not an expert, but I'm not sure this is allowed. My understanding is you can only transfer between similar accounts, so traditional to traditional or Roth to Roth. I believe you'd be subject to the IRA contribution limits which is only around $6,500-7,500 this year. I'd check with an expert first.

ATtiny85

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Re: Selling from Taxable account to Invest in Roth
« Reply #2 on: March 18, 2023, 02:51:20 PM »
Why sell? That just potentially/likely makes capital gains, which might be taxable, depending on your overall income.

Why not just make the Roth investment with your money? Maybe I just donít understand what you are wanting to do.

I never care or know what the price of VTSAX is. I have about a hundred buys and have never cared.

MustacheAndaHalf

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Re: Selling from Taxable account to Invest in Roth
« Reply #3 on: March 19, 2023, 04:45:03 AM »
I have $300k in taxable investments.  My plan is to liquidate from the taxable account and contribute to the IRA on the same day for the same equities.  The end result will be that I hold the same number of shares, but with a different basis than before.  I understand that this move would trigger wash sale rules if I post any losses, but I donít plan to sell any lots that generate losses.  Also, since Iím buying and selling the same day, who cares what the price of VTSAX is at the time, right?

You can't contribute more than $7,500 to a Roth IRA for 2023 ($6,500 age 49 and younger).

Quote
For 2023, the total contributions you make each year to all of your traditional IRAs  and Roth IRAs can't be more than:

$6,500 ($7,500 if you're age 50 or older), or
If less, your taxable compensation for the year
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits

ATtiny85

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Re: Selling from Taxable account to Invest in Roth
« Reply #4 on: March 20, 2023, 05:49:49 AM »
I didn't get the impression from the OP that the yearly limits were in play, just some technique to "fund" the yearly contributions with existing shares of VTSAX instead of using new or existing cash. I agree it is not very clear in the OP, but doubtful (?)  someone posting here would not be aware of the limits.

I read it as OP wanting to let cash build up in an account (this cash coming from a job), and sell VTSAX in taxable and turn around and buy VTSAX in IRA. I have no idea why someone would do that, but that's how I read it. Actually, I guess in some narrow "want to shift some funds to cash, but don't want to be out of the market, but still fund IRA as a equity position" scenario I could see doing something like this. But there are possible tax considerations to be discussed. Likely possible to do it without an impact (with $300k in taxable there are likely some lots with losses, or carryover losses around...)

catccc

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Re: Selling from Taxable account to Invest in Roth
« Reply #5 on: March 27, 2023, 01:46:03 PM »
Thanks all.  Yes, I am aware of the limits.  (I see how indicating the brokerage balance called that into question, though.  My mistake!)

I read it as OP wanting to let cash build up in an account (this cash coming from a job), and sell VTSAX in taxable and turn around and buy VTSAX in IRA. I have no idea why someone would do that, but that's how I read it. Actually, I guess in some narrow "want to shift some funds to cash, but don't want to be out of the market, but still fund IRA as a equity position" scenario I could see doing something like this. But there are possible tax considerations to be discussed. Likely possible to do it without an impact (with $300k in taxable there are likely some lots with losses, or carryover losses around...)


Yeah, you are exactly right, I'm in a "narrow" scenario of wanting cash outside of investments for a specific purpose, but I don't want to be out of the market, nor do I want to halt IRA contributions.  So, cash from my job will build up for the specific cash need, and I will fund my IRA from my taxable investment account.

Also, could've sworn I put this in the investments sub forum.  Not sure how it landed in taxes, I don't think this was a tax question.
« Last Edit: March 27, 2023, 02:19:53 PM by catccc »

MustacheAndaHalf

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Re: Selling from Taxable account to Invest in Roth
« Reply #6 on: March 28, 2023, 06:05:40 AM »
..., and I will fund my IRA from my taxable investment account.

Also, could've sworn I put this in the investments sub forum.  Not sure how it landed in taxes, I don't think this was a tax question.
You did put it in "Investments" originally, but the topic being a "Roth contribution" plus IRS "wash sale" concern seemed fitting for the taxes area.
https://forum.mrmoneymustache.com/investor-alley/moved-selling-from-taxable-account-to-invest-in-roth/

Because you can't directly contribute VTSAX, you need to pick a lot to sell that avoids the IRS wash sale rule (as you know).  Guessing you will pick a tax lot that has the smallest gains, but is a long-term (366+ day) holding.

Normally after you sell a mutual fund, you have settled cash on the third business day after that (T+2, next two business days are settlement).  You should be able to contribute to your Roth IRA on that third business day after the sale.

catccc

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Re: Selling from Taxable account to Invest in Roth
« Reply #7 on: March 29, 2023, 03:11:05 PM »
Thanks.  I ended up finding out that I can exchange directly from my taxable account to my IRA account (both are with VG), so no need to wait for the sale to settle before making the purchase.  I wasn't originally planning to post any losses, but after a closer look, this is an ideal TLH situation (albeit with minor benefit, losses will be $1,200 for proceeds needed to max 2 IRAs), so perhaps the question is more tax-y than I originally intended.  Anyway, all good news!  I'm waiting out the 30 days from my last VTSAX purchase before initiating the exchange.  It's a weird move but I'm glad I looked into it.

MustacheAndaHalf

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Re: Selling from Taxable account to Invest in Roth
« Reply #8 on: March 30, 2023, 05:49:45 AM »
I wasn't originally planning to post any losses, but after a closer look, this is an ideal TLH situation (albeit with minor benefit, losses will be $1,200 for proceeds needed to max 2 IRAs), so perhaps the question is more tax-y than I originally intended.
You plan to sell VTSAX at a loss, and then immediately buy it in a Roth IRA?

That sounds like a wash sale to me.  Also, when you have a wash sale involving a Roth IRA, the taxable loss is gone forever.  Normally the "cost basis" transfers to the new purchase, but a Roth IRA does not use cost basis, so it gets lost.

seattlecyclone

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Re: Selling from Taxable account to Invest in Roth
« Reply #9 on: March 30, 2023, 11:26:18 AM »
Yes you'll be better off selling shares that are slightly in the black for your IRA contribution, and separately harvesting losses once the 30-day window after your purchase has expired.

catccc

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Re: Selling from Taxable account to Invest in Roth
« Reply #10 on: March 30, 2023, 05:18:09 PM »
I wasn't originally planning to post any losses, but after a closer look, this is an ideal TLH situation (albeit with minor benefit, losses will be $1,200 for proceeds needed to max 2 IRAs), so perhaps the question is more tax-y than I originally intended.
You plan to sell VTSAX at a loss, and then immediately buy it in a Roth IRA?

That sounds like a wash sale to me.  Also, when you have a wash sale involving a Roth IRA, the taxable loss is gone forever.  Normally the "cost basis" transfers to the new purchase, but a Roth IRA does not use cost basis, so it gets lost.

No, I'm going to sell VTSAX and buy a TLH partner, likely VFIAX.

 

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