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Converting from IRA to Roth IRA with a twist
Old 03-23-2008, 01:24 AM   #1
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Converting from IRA to Roth IRA with a twist

Confused a bit on what I can do. Here's the poser.
If I have shares of stock abc in an IRA, I understand that assuming all accounts are at same brokerage, I could transfer those shares to a Roth IRA without liquidating them first. Assuming that you would use the cost basis of those shares, rather then the current market price, that seems a way of being able to transfer in and not have to recognize the increase value for tax purposes untill withdrawing, at which time no tax would be due coming from a Roth. (of course meeting all timeframes for account establishment, etc).
IF that is true, could the same thing apply via a taxable account, meaning, since all shares at a brokerage are essentially the same, could you transfer out the shares in an IRA that may have a high cost basis, and transfer in an equal number of shares to the Roth that may have a low cost basis, due to having held them for a very long time. Thus being able to recognize the large gain under the Roth, and the small gain under a taxable account.
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Old 03-23-2008, 07:58 AM   #2
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Good thinking outside the box....

But I will bet there is nothing that would allow you to fund your IRA with the 'cost basis' of stock instead of the 'current value'.... (just noticed this is not in your thinking)...

As for distribution... this is most definitely a no go.... ALL distribution from an IRA are at the current value, so moving to an ROTH triggers full value for taxes...

The other also is a trigger event... you can not move 'cost basis' around.

But go ahead and try it and tell us what the IRS does to you.....
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Old 03-23-2008, 08:22 AM   #3
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There is a wrinkle in the tax law concerning "highly appreciated stock" that gets put into a 401k. If you've worked for a company many years and their match has been in the form of stock, this stock can be transferred at its original cost basis out of the 401k. I'm not sure of all of the details but it is a reason for people with company stock to not just blindly move everything from a 401k to an IRA.

The original question is, however, a wonderful way to personally experience the wrath of the IRS.
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Old 03-23-2008, 08:45 AM   #4
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Yep, in general, the cost basis of a traditional 401(k) or IRA is $0. You may have some positive cost basis if you made after-tax contributions. And 2B mentions the NUA stuff which can be researched here: NUA stock 401(k) - Google Search
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Old 03-23-2008, 08:47 PM   #5
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Originally Posted by LOL! View Post
Yep, in general, the cost basis of a traditional 401(k) or IRA is $0. You may have some positive cost basis if you made after-tax contributions. And 2B mentions the NUA stuff which can be researched here: NUA stock 401(k) - Google Search

YES.... NUA is something people should plan for if they can buy stock in their 401s....

But, it is written into the law and is not some 'funny' transfers as the OP posted about an IRA...
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Old 03-23-2008, 10:38 PM   #6
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I got the idea from reading some of the IRA stuff in other forums, for whatever that is worth. They had mentioned that when they had both their IRA and their ROTH with the same broker, and with a stock owned in the IRA, that the broker would transfer the stock, for them with no hassle. No mention was made about selling or cost basis, which was what set me to wondering and why I posted my original question. Don't want to get busted by the IRS, but trying to figure out one of those loopholes the rich use, to avoid some taxes. Still looking I guess. Appreciate the replies.
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Old 03-24-2008, 01:23 AM   #7
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Whitestick...

What basis would you have in an IRA? Unless you put in after tax money, it is zero...

And any distribution from an IRA is considered 'cash'.... so moving the shares is like moving at 'market', not what you bought them for....

So yes, they will be happy to move them for you, but it does nothing...

Let's look at it from another way... say you owned shares with a basis of $1 and a value of $50... you could not transfer 4,000 shares into an IRA and say it was your annual contribution... because you actually transferred $200,000.. (now, nobody would want to do this of course... just an example)...

What not post this in the other forum and see what they say
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Old 03-25-2008, 12:42 AM   #8
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Quote:
Originally Posted by Texas Proud View Post
say you owned shares with a basis of $1 and a value of $50... you could not transfer 4,000 shares into an IRA and say it was your annual contribution... because you actually transferred $200,000..
That's pretty much exactly my situation, although where I was leading to was hopefully being able to transfer into the Roth, rather then the IRA, which would have let me put in at my original basis of about $1, and when I withdrew them would come out at the $50, but not taxed. Thought it might be too good to be true, but asked anyway. Thanks
Darn taxes anyway
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