Roth Conversion of In Kind Stock

[jazz4cash]

Can I do this?
What are pros and cons?
What is best way to handle the taxes?
I need to call Fido to provide withholding instructions.


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[braumeister]

Just tell them to move XX shares of XYZ stock from your Trad to your Roth. They will give you the value so you can calculate your taxes. Just remember that you're paying tax on the whole amount, not just any gains you have in it. Whether to have taxes withheld is dependent on several factors -- up to you.

 

[RE2Boys]

Call Fidelity!!

I had mutual fund shares transferred from a traditional IRA account to a Roth IRA account, no problem.

Tax withholding is optional. However, you need to have sufficient withholding or estimated taxes paid to avoid penalties. If you need to pay more, send in an estimated payment to cover this conversion. Or you can increase other withholdings to cover the conversion, up to you.

 

[growing_older]

You can convert from Trad to Roth - and pay the taxes on any increase in value from your original IRA pro-rated basis (for ALL your IRA accounts COMBINED, not just the one you are converting).

You cannot make in-kind contributions to a Roth (or Trad IRA) directly. If you were thinking of doing this to avoid realizing capital gains, the rules prevent this.

 

[pb4uski]

Just curious... what is the benefit of transferring shares vs just selling shares in the IRA and simultaneously buying them in the Roth?

 

[GrayHare]

Just curious... what is the benefit of transferring shares vs just selling shares in the IRA and simultaneously buying them in the Roth?

No transaction fees, less paperwork, no wash sale rule concerns (actually, does that apply to IRAs?), simplicity.

 

[pb4uski]

I guess I can see for individual stocks.... I use funds... sometimes I exchange the same fund and sometimes not.

Wash sale rules can apply to IRAs. IOW, you can't sell XYZ fund for a loss in your taxable account and then buy XYZ fund in your IRA. In order to get the loss you have to be out of XYZ fund for the requisite number of days. But you can sell XYZ fund for a loss and buy ABC fund that is similar (but not substantially identical) in either your taxable account or your IRA.

 

[jazz4cash]

No transaction fees, less paperwork, no wash sale rule concerns (actually, does that apply to IRAs?), simplicity.

The question of why was part of my original post. I wasn't sure if there was any benefit. As I thought about it I came up with all of the above and also I would've had to wait for the sale to settle and risk the stock moving against me.

I did talk to Fido and they said no problem after checking with 2nd level CSR. I would need cash in the trad IRA for withholding or just settle when I file as several posters stated.
Thanks to all.



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[bingybear]

Just curious... what is the benefit of transferring shares vs just selling shares in the IRA and simultaneously buying them in the Roth?

Other than what had been posted... think of the process of selling the shares in the TIRA, moving the cash between accounts (-- the conversion) and then buying the same shares again.
It is much easier to say move X shares from TIRA to the Roth. The brokerage will note the price at which they moved and therefore the conversion amount.
No transaction fees, not bid/ask spreads. And no basis to track ... except on your taxes if you had a tax basis in the TIRA, but that has nothing to do with the individual shares converted.

If one really wants to move them it is less work than selling shares, moving the cash and then buying them back. It also should create a wash sale.

 

[Sunset]

I see the value in transferring some stock, especially if it is low volume trading stock, like OTC where in a day perhaps only 400 shares trade.

Wash sales ONLY apply to losses, never to gains.

So if you had a gain, you can sell and immediately buy back the same stock which is often done in regular accounts to capture LTCG, and you pay tax depending upon the tax bracket on the gain you had.

Losses typically don't apply to IRA's either, unless the entire IRA is worth less than what was originally invested which is rare.

 

[bingybear]

I see the value in transferring some stock, especially if it is low volume trading stock, like OTC where in a day perhaps only 400 shares trade.

Wash sales ONLY apply to losses, never to gains.

So if you had a gain, you can sell and immediately buy back the same stock which is often done in regular accounts to capture LTCG, and you pay tax depending upon the tax bracket on the gain you had.

Losses typically don't apply to IRA's either, unless the entire IRA is worth less than what was originally invested which is rare.

I see the value of transferring stock as a simplified processing. Assuming I like my over all allocation and I want to do a roth conversion, I just move shares from IRA to Roth and I'm done. Why would I want to sell shares to move cash and then buy the same shares again? OK, if you convert to cash you can determine the exact amount converted. With moving shares you determine the number of shares, but the price will depend on the market price when the move is actually made.

As for the wash sale... this only applies if you sell shares of X in a taxable account at a loss and buy it back withing the +/-30 (31?) days in any account. This still applies is the re-purchased shares are bought in a roth or TIRA. But moving shares is not purchasing. Yes, this might not be common event.

For me, moving shares is cheaper and easier. No commissions and only a single request of the broker.

I agree that moving lightly traded stock would be a plus for moving shares.

 

[pb4uski]

Since I have funds the easiest path for me is to just "exchange" shares from tIRA to Roth... I have Total Stock in the Roth but what I redeem out of the tIRA may be different due to rebalancing... all done online.... easy as pie.

Minimal risk of wash sale concerns unless I happen to have a sale of Total Stock at a loss in my taxable account within the 61 day window when I do my Roth conversion.

 

[Cobra9777]

I own ETFs and the in-kind transfer is simpler for me. It's just a single online transfer transaction from the tIRA to the Roth. I own a mix of Vanguard and iShares ETFs at Fidelity. iShares trade free, but the Vanguard ETFs would incur $7.95 on both the sell and buy, plus I can't transfer the cash for a day or two. So the in-kind transfer is a little more straightforward. Only downside is that since you are transferring shares not dollars, as you would with cash or mutual funds, the conversion amount may be slightly higher or lower than your target. As part of the online transfer transaction, I select no tax withholding since I make quarterly estimated payments anyway.

 

[jazz4cash]

I will probably do this in the future as I have headroom to convert without bumping into the next tax bracket. I don't expect any tax savings from the conversions, it's just a way to diversify from having a high percentage of tax-deferred savings and reduce RMDs when the time comes. Several posters mentioned wash sales and gains but I have no basis in my TIRA's or Roth IRA's so I don't see any issues there.

 

[pb4uski]

You can have wash sale issues even if you don't have any basis.

For example, you sell some of Fund X in your taxable account at a loss. Less than 30 days later, as part of your rebalancing, you do a Roth conversion of Fund Y in your tIRA to Fund X in your Roth. The purchase of Fund X in your Roth violates the wash sale rules since you have not been out of Fund X for 30 days.

If not for these rules people could just sell at a loss and buy back the same security in their tax-deferred account. In order to get the benefit of the loss you need to be out of the security for the requisite time.

 

[Ed_The_Gypsy]

I tried to do this at Vanguard. It was taking a LONG time. Too long. I cancelled the transaction, sold the shares and transferred the cash without any more delay.

It may work for you, but do not try to move stock towards the end of the year.

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[bingybear]

I tried to do this at Vanguard. It was taking a LONG time. Too long. I cancelled the transaction, sold the shares and transferred the cash without any more delay.

It may work for you, but do not try to move stock towards the end of the year.

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I did the moving of shares at Schwab and it was nearly instantaneous. I asked for X shares to move from TIRA to Roth... refreshed my screen and it was done. I had my rep walk me through the process. This was seconds from my perception. The actual move was likely faster. I knew the $ amount when the shares were transferred.

Ask vanguard if they have a way that you can move shares. Also check to see how to set the withholding before you do. For my case I set it to no withholding. Moving share that have cleared previous transactions should be quick

 

[jazz4cash]

I tried to do this at Vanguard. It was taking a LONG time. Too long. I cancelled the transaction, sold the shares and transferred the cash without any more delay.

It may work for you, but do not try to move stock towards the end of the year.

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Fido said I could convert into a nearly identical SP500 and it would be same day.


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[Animorph]

I've been Roth converting in-kind at Fidelity for a few years now. It's very easy, all online. Although I've always done it during market hours, I believe Fidelity will execute Roth conversions for a couple of hours after market close using that day's pricing.

I do not request any tax withholding, since I pay with taxable funds using estimated tax, but it is a step during the online process. In general, reducing the conversion amount by paying taxes from it negates much of the benefit of a Roth conversion.

I use many mutual funds/ETF's in a slice-and-dice portfolio. I like to Roth convert the shares of a single fund/ETF into their own Roth IRA. At the end of the year I might have 12 new Roth IRA's. Then in March the next year I can choose to keep the Roth IRA's that have the biggest Roth gains and recharacterize the rest. That can save a little on taxes. The recharacterization process is now all online as well. The only problem I've ever had is that Fidelity won't let me reuse the Roth IRA's I zero out by recharacterization, so I do have a ton of Roth IRA's with nothing in them.

No harm in running through the process online and bailing out before the final confirmation just to see what it's like.

 

[Cobra9777]

I've been Roth converting in-kind at Fidelity for a few years now. It's very easy, all online. Although I've always done it during market hours, I believe Fidelity will execute Roth conversions for a couple of hours after market close using that day's pricing....

For ETFs, if you do the conversion during market hours, what price is used? Closing price, average price for the day, market price at the time of transaction, or something else? Is this governed by IRS rules or is up to each brokerage?

 

[Ed_The_Gypsy]

Ask vanguard if they have a way that you can move shares. Also check to see how to set the withholding before you do. For my case I set it to no withholding. Moving share that have cleared previous transactions should be quick

I did ask to move the shares.

The withholding may be the difference. I asked for 20% to be withheld.


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[bingybear]

For ETFs, if you do the conversion during market hours, what price is used? Closing price, average price for the day, market price at the time of transaction, or something else? Is this governed by IRS rules or is up to each brokerage?

Market price. I look at what the price is just before doing the move and determine the number of shares. After doing the move I check the value in the new account. I forget when I did this last year if there was a transaction listed online of the move just after. I recall talking with my Schwab rep who told me the price at which the shares were transferred. So you don't have to wait to sort out exactly the size of the conversion.

I did ask to move the shares.

The withholding may be the difference. I asked for 20% to be withheld.


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I can't speak for Vanguard as to the slow response. Check if they have an automated method. If you are using mutual funds, I would expect the transfer to happen at the end of the day as that is the time that the mutual funds will be priced. ETFs and stocks should be able to be move during market hours.

Schwab and Fido (based on other replies) has this all online. This years conversion will be done at Fido.

 

[Cobra9777]

For ETFs, if you do the conversion during market hours, what price is used? Closing price, average price for the day, market price at the time of transaction, or something else? Is this governed by IRS rules or is up to each brokerage?

Market price. I look at what the price is just before doing the move and determine the number of shares. After doing the move I check the value in the new account. I forget when I did this last year if there was a transaction listed online of the move just after. I recall talking with my Schwab rep who told me the price at which the shares were transferred. So you don't have to wait to sort out exactly the size of the conversion...

Interesting. I called Fidelity yesterday and posed this same question. They said that in-kind conversions (even for individual stocks and ETFs) are valued at the closing price on the day of conversion, not the market price at time of transaction. He also said this was a Fidelity policy and that other brokerages might handle it differently. He recommended doing the transaction right before market closing if you are targeting a specific dollar amount.

 

[FIREchief]

I did ask to move the shares.

The withholding may be the difference. I asked for 20% to be withheld.


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If you are younger than 59 1/2, won't you pay the 10% penalty on this?

 

[FIREchief]

Fido said I could convert into a nearly identical SP500 and it would be same day.

Were you converting less than $10,000? If so, this sounds like just a change in share class.