Can I rollover securities in-kind from a traditional IRA to a Roth?
Is it possible to rollover securities in-kind from a traditional IRA to a Roth? Both accounts are held by the same trustee. Currently in these accounts are a combo of cash, stocks, and mutual funds. I would love to not have to sell to convert. I know that there would be taxable income on the conversion.
Yes, I've done in kind transfers for clients on Roth conversions on a number of occasions. In fact, Schwab's IRA distribution form effectively defaults to the in kind distribution if you specify a Roth conversion. Your custodian will track the value of the in kind transfer on the date of the conversion and report it as income on your IRA's 1099-R.
Yes, you may do a Roth conversion with your entire traditional IRA or even do a partial conversion. And no, you need not sell any postions in order to facilitate the conversion. Actually, taking advantage of any price depreciation is a good strategy since you will be paying taxes at your current tax rate then once it is in the Roth IRA it may continue to grow tax free.
You may also undo your conversion. The IRS also allows you to re-characterize your Roth IRA back to a traditional IRA, which may be valuable if your investment value declines further down after you have done the conversion or if your financial situation changes and you do not want to pay your tax bill that year, as you can recoup the taxes paid for the conversion. If you do need to undo your conversion it has to be the entire account, therefore opening more than Roth IRA to convert or doing a conversion could be options if this is a concern.
Another benefit to converting to a Roth is the avoidance of having to take the required minimum distributions after the age of 70.5 each year. Your heirs will also receive Roth funds tax-free versus at their top tax bracket.
Due to the Tax Increase Prevention and Reconciliation Act of 2005, all holders of IRAs (SEP, SIMPLE and traditional) can convert to a Roth IRA regardless of their income. Previously, in order to be able to convert from an IRA to a Roth IRA your income needed to be under $100,000. Many IRA holders may not be aware of this strategy and as a result may be missing out on an opportunity to eliminate future taxes on their retirement plans, thereby compounding their total return.
Through a Roth conversion, you simply elect to be taxed at current individual tax rates for the total amount that you convert to a Roth IRA. You may do a full or a partial conversion. Once it is converted, any withdrawals from the Roth account after five years and achieving the age of 59.5 will be tax-free. Additionally, IRA investments in private holdings that are anticipating a step up in valuation could afford a significant tax advantage.
Converting from a traditional IRA to a Roth could be a useful tool. By paying taxes today you can take advantage of historically low rates. Also, if you are young enough you may still have plenty of deductions that could potentially help offset the taxes. Additionally, our new White House administration’s tax plan could potentially make it an even more attractive time.
Read more: Tax Savings with a Roth IRA and Real Estate | Investopedia https://www.investopedia.com/advisor-network/articles/tax-savings-roth-ira-and-real-estate/#ixzz4iPjn5030
The best way to find out is to ask. Call your financial institution which holds both of your T-IRA and Roth IRA to make sure you can do so as every firm has its own policy regarding to the conversion procedure. I’m glad to see you understood the consequences of a conversion—paying the income tax. Follow your logic--you don’t have to convert all of your holdings at one time.
Two tips: one is to pick the right amount. The goal is not to accidentally bump your current tax bracket to the next higher one simply because you add the conversion amount to your regular income. Secondly, you may want to pick a temporary “loser” (stock/mutual fund/ETF) but may have a potential to increase after the conversion. This way, you pay less tax now but enjoy the tax-free growth later. Best!
Yes. It appears you have looked into the tax consequences. It never hurts to chat with a tax professional if you have not already done so. Take a close look at what you are moving in-kind and try and make the most advantageous choice there. Look for investments that are on a bit of a downswing and target them first.