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.
When you speak to your custodian they will tell you that the answer is yes. If you are rolling over your entire account then that is simple, if you are rolling over part of it, you may have to select the assets or specify the percentage. The taxable value is based on the closing value the day before the rollover. Since for tax purposes, the conversion is similar to a distribution, you may elect to have them withhold some money and pay the IRS or you can pay the IRS with outside funds. If the conversion is substantial, you may wish to speak with your tax person and determine if you should pay estimated taxes so that you can escape tax penalties.
Yes, you can rollover all securities in-kind, which will save you on transaction cost. You don't mention anything the size of the traditional IRA and your current income level.But keep mind that entire value of the Traditional IRA will be added to your ordinary income and you will owe taxes based on your tax bracket. If the value of the IRA is relatively small then it's less of a concern. If the amount is high relative to your income then you should consider doing the Roth conversion gradually in several years.
You can certainly convert (not rollover!) securities from a traditional IRA, 401(k), 403(b), 457, SEP-IRA, Keogh, and just about any other non-Roth retirement account into a Roth account. That should be part of every investor's long-term tax planning, since whenever you convert into a Roth you ensure that all future gains on that security are tax-free. The key is to convert whatever is most depressed at any given time, since you will pay taxes the next year on the total valuation of whatever you convert at the time that you convert it. So if you convert shares which are near multi-year lows, you will pay low taxes based upon those valuations and all future gains will be tax-free.
You definitely don't have to sell the shares before converting them. That would be a serious mistake.
The reason that more advisors don't recommend Roth conversions is that they require you to pay more taxes now. Many advisors hate to do that because they don't want to disappoint you in the short run, even though you can save ten or twenty times as much money in the long run.
Part of my investment strategy is converting shares for myself, my spouse, my Dad, and my clients which I have been doing since 2000. This is an essential part of what any financial advisor should do.
If any shares which are converted drop further in price, then you can recharacterize those shares back into a traditional IRA and then conver them again at lower prices. So it's heads you win and tails you also win eventually.
When you do a conversion to a Roth IRA, don't convert the shares into an already-existing Roth IRA. Instead, convert them into a new Roth IRA. That way, if you have to recharacterize them, you will get the maximum refund for doing so. You have until October 15 of the year following any conversion to recharacterize (undo) them. Once October 15 passes, you can no longer recharacterize and you can merge those shares into your regular Roth IRA acccount(s).
From what you have described, with both accounts held with the same trustee, I don't see any reason why should not be able to transfer the securities in-kind.
However, as you have mentioned, the conversion would generate taxable income.