Can You Roll Over Stocks in an Investment Fund to an IRA?

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You have many choices when saving money for your retirement. If you have investments in an investment fund and want to put them into your IRA, you must understand the process for this, as well as the tax implication. IRAs have very strict rules about contribution amounts and types, as well as rollovers and transfers to and from the account. If you do not properly contribute money to the account, you could face IRS penalties.

Process

When you contribute money to an IRA, you must obey all the rules and guidelines of IRA contributions. Only money inside an IRA may be rolled into another IRA. This means that if you have investments in an investment fund, they are not allowed to be rolled into a new IRA. Additionally, IRAs only accept cash contributions. You must liquidate your investment fund and then deposit the money into the IRA. You also must obey contribution rules. As of 2011, contributions to IRAs are limited to $5,000 per year for people under age 50 and $6,000 for those 50 and over.

Significance

Because IRAs do not accept securities as contributions, you pay tax on all of your investments that must be liquidated. The liquidated investments may then be contributed to your account. However, if you have sizable investments, it may take a long time to fund your IRA due to the contribution limits.

Benefit

The benefit of moving investment funds into an IRA is that future investment earnings in your IRA are exempt from taxation. By keeping your investment fund outside an IRA, you subject yourself to owing income tax on investment income, and also on capital gains if you sell your investments and realize a gain.

Consideration

When transferring assets into your IRA, consider transferring the assets over time. If you liquidate all your investment fund, you immediately owe tax on all the gain. However, you may not be able to deposit all the investment into your IRA in the first year. Instead of paying the tax and having to figure out where to invest the money you cannot immediately deposit into your IRA, consider simply liquidating your investments over time.

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References

  • IRS: Publication 590
  • "Practicing Financial Planning for Professionals (Practitioners' Edition), 10th Edition"; Sid Mittra, Anandi P. Sahu, Robert A Crane; 2007
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