Can I Transfer In-Kind Assets Into a Roth IRA?

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Knowing what type of assets you may contribute or transfer into a Roth IRA can save you a great deal of time and trouble. There are many rules pertaining to IRA contributions that must be obeyed in order to avoid unnecessary penalties and problems. Some of these rules address the manner and nature of the types of contributions that may be made into these accounts.

Roth IRA Contributions

All contributions to Roth (and traditional) IRAs must be made in cash. Assets cannot be contributed in-kind into either type of IRA under any circumstances. Stocks, bonds, mutual funds, CDs, bonds or securities of any kind must therefore be liquidated and the proceeds used as contributions. The same goes for tangible assets, such as precious metals, collectibles and real estate.

Transfers to Roth IRAs

Any asset that is currently held in a traditional or Roth IRA can be transferred into another Roth account with no problem. This is a standard procedure that is commonly done every day by hundreds of financial institutions. It is not necessary to liquidate assets in order to transfer them from one account to another.

Roth Conversion Transfers

All assets that are held inside a traditional IRA that is converted to a Roth IRA can also be transferred as is. No liquidation of assets is necessary in order for the conversion to take place. As the IRA owner, you can liquidate the assets if you so choose, but it is not a requirement by the IRS.

Transfers From Retail Account to Roth IRA

Any assets that are placed inside a taxable retail account must be liquidated before being transferred to a traditional or Roth IRA. In-kind transfers between taxable accounts and IRAs unconditionally disallowed by the IRS. Of course, cash may be taken out of a taxable account and transferred to a traditional or Roth IRA in the form of a cash contribution, but that is not considered a transfer per se.

Taxation and Contribution Limitations

There are limits on the amounts that may be contributed to both traditional and Roth IRAs each year. Therefore, those who need to liquidate holdings inside a taxable account in order to generate cash for these contributions should know how much they need to sell in order to arrive at the correct amount. For example, it will not be necessary to sell $20,000 worth of stock in a taxable account in order to make a Roth IRA contribution in 2010, since the contribution limit into any IRA in 2010 is $5,000 (or $6,000 for those age 50 and above.) Selling securities in a taxable account to procure cash for IRA contributions is also a taxable event in and of itself that will generate either a taxable gain or declarable loss. Consider this factor if you decide to liquidate current holdings for this reason.

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