Buying a Roth with existing money in stocks (non IRA)?

[ninabette]

I have about $10K in stocks (XOM and KFT) that are in neither a Roth nor traditional IRA investments (I have IRA and 401K money as well). I have already made my $3K Roth investment for 2004 and would like to use $4K of this money to convert over to a Roth for my 2005 contribution. Should I be able to do this no problem or do I have to sell, cash my stocks out and then rebuy into my Roth? Or do I have to take another $4K out of pocket to do this?

Any advice would be appreciated--I'd love to just roll it over seamlessly...

[terry1156]

Re: Buying a Roth with existing money in stocks (non IRA)?

I'm not an expert in this area, but I don't think you'll have any problem at all. There are no limits in the number of roth IRAs you can have as long as all of them together don't go over the max contribution you're allowed. If your current IRA is individual stocks you've picked, then you can probably get that transfered into your current IRA. If you have a mutual fund as your IRA, then you can just open a new IRA account.

If you don't sell the stocks, then you probably have some gains in them that probably need to be declared, so you'll have to be careful with that.

[ninabette]

Re: Buying a Roth with existing money in stocks (non IRA)?

Terry,

I also asked Scottrade (my new "broker" after I fired my crappy full service brokerage--which was a ripoff, by the way, if you know anything at all about investing!) this same question and here is their response:

IRA accounts and other retirement accounts may not be funded with stock. You may only make cash contributions to these types of accounts, in accordance with IRS rules. After the account has been funded with cash, you may use those funds to make your desired investments in stocks and/or other investments.

So I'm going to have to sell my current stock and then reinvest the cash as Roth money. FYI for anyone out there wondering. Makes me REALLY wish I had put my IRA money in Exxon and not my personal investment account which has made a tidy profit!!

[terry1156]

Re: Buying a Roth with existing money in stocks (non IRA)?

That makes sense. I started thinking more about it and about the gains in stocks and how you would have to declare those gains while switching over the stock and thought my answer might have been wrong. When I cam back to add more, you'd already clarified everything. Great to know.