Should I sell my mutual funds in order to start Roth IRA?

[ithaca]

About 10 years ago, my uncle gave me a gift of stocks from his company. The stocks were worth approximately $3000 10 years ago, and after a big drop in price, they climbed back up to $3000 last year. Since my dad's name was on these stocks (I was 19 when I received them), he transfered the money into a gold & precious metals mutual fund through Raymond James 12 months ago. The account has since grown to $4000.

I would really like to start a Roth IRA for myself and I know that I still have time to contribute for 2006. Unfortunately I don't have $4000 in savings right now because I'm getting married in a few months. So should I sell all of the mutual funds in order to open a Roth IRA? If I sell the mutual funds, am I going to pay taxes on the entire $4000 since it was originally a gift or would I just pay taxes on the growth? Any advice would be greatly appreciated. Thanks!

[jIM_Ohio]

Not sure on taxing of gifted stock... I'd like to think you get the "stepped up" basis of $3000, but consult a tax professional or IRS web site.

YES, sell the securities and open a Roth IRA. Good move.

[Ima saver]

Yes,I think you should sell and open a roth also.

[Fern]

If all you want to do is open a Roth, you don't need to sell anything. If you haven't made your IRA contribution for 2007, you just need to contact the mutual fund company and tell them you want to convert your current taxable gold and precious metals mutual fund into a Roth IRA.

the mutual fund is the type of investment; the Roth IRA designation is just that, a designation that confers tax-deferred status, that can be applied to any type of investment, whether it's a mutual fund, bank savings account or a money market, if that's what you wanted.

[Fern]

I'm not recommending you do this, by the way, ie, making a precious metals fund your IRA as it's pretty volatile and not very diversified, i'm only pointing out that the Roth IRA status is just a 'wrapper' you can put on any kind of investment. Your original post made it seem as tho you were a little unclear on that.

[sweeps]

Originally Posted by Fern

If all you want to do is open a Roth, you don't need to sell anything. If you haven't made your IRA contribution for 2007, you just need to contact the mutual fund company and tell them you want to convert your current taxable gold and precious metals mutual fund into a Roth IRA.

No can do. Taxable funds must be sold before you can fund the IRA. Uncle Sam wants his tax revenue.

[jIM_Ohio]

Originally Posted by sweeps

No can do. Taxable funds must be sold before you can fund the IRA. Uncle Sam wants his tax revenue.

I agree with sweeps. Need to cash out then cash in.

[bjl584]

Agreed. Any security that you own must be liquidated into cash before rolling it into a Roth. I too am unsure about the tax. I would say that you would be taxed on the gain that you made, but since it was a gift, I'm not sure. A tax professional could clear that up with a simple phone call.

[creditcardfree]

A tax form will be generated by the type of transaction Fern referred to and still show as a taxable event. It just saves time and money to move the money right at the mutual fund company. To the IRS, it will look like it was sold and then new shares bought in the Roth IRA.

[sweeps]

Yes, the broker may be hiding the details from the customer, but ultimately they are performing a sell/buy transaction.

[Fern]

ok, i stand corrected.