Funding source for ROTH IRA contribution

Submitted by Ron Smith on Wed, 2017-02-01 21:30

So appreciate this board. It is an excellent resource. for verifying that there is no age lmitation for ROTH IRA contributions. https://irahelp.com/forum-post/12223-funding-roth-ira

I am 72 and my wife is 65, still working, and earned enough in 2016 to fully fund my ROTH IRA.

Question: We have an investment account that has proceeds from the sale of our home a few years ago. Is it legal to fund the ROTH IRA contribution from that investment account? Someone else suggested a ROTH 401k.

Would either be a wise move? No distributions are planned.

Thank you!

Ron



Submitted by Alan - IRA critic on Wed, 2017-02-01 22:27

A spousal Roth contribution can be made to your IRA using your wife’s earned income as long as your joint modified AGI is not over 184k. There are no age limits for Roth IRA contributions. To fund the contribution, you can use funds from any account you have including the investment account, but of course the contribution must be in cash. A Roth contribution is better if your current tax rate is lower than you expect it to be later on in retirement. If it is higher now because your wife is still working, then a pre tax contribution is more beneficial. Unless you are self employed you cannot contribute to a Roth 401k. Your wife could if her employer has a 401k with a Roth option.

Submitted by Ron Smith on Thu, 2017-02-02 02:56

  • To fund the contribution, you can use funds from any account you have including the investment account, but of course the contribution must be in cash.

Clarification: if the same trustee holds both the ROTH IRA and the investment account, can $6,500 in stock be sold from the Investment account and purchased in the ROTH IRA?  Would that be the same as a cash deposit?

Submitted by Alan - IRA critic on Thu, 2017-02-02 04:24

Yes, if the stock is sold in the investment account to produce cash and then the cash is transferred to the IRA as a regular contribution, this is OK. Your wife must have at least as much earned income as the contribution. Finally, if the same stock is re purchased in the IRA, a wash sale must be avoided. If the stock in the investment account is sold for a loss, then a re purchase of the same stock  in the IRA would be a wash sale unless the re purchase is delayed 31 days.

Submitted by Ron Smith on Fri, 2017-02-03 20:35

Prior to the sale of our condo – with the focus on funding retirement accounts – the need for learning about the nuances of investment accounts was never on my radar.  

(His quote) “I did some more homework after my last posting and have another question.  But first, a refresher.  I have wash-sale considerations to deal with only if

  1. I have a sale
  2. For a loss
  3. In a taxable brokerage account and
  4. the Purchase the same/similar within 30 days before or after that sale, in either a brokerage account or IRA. 
  5. Right?If I’ve got that right, what happens when I reinvest dividends in a mutual fund within 31 days before selling?”
  6. (Your summation to #5)  “One solution if you plan to redeem the fund is to stop dividend reinvestments 31 days before you sell, just take the dividends in cash.”   

Based on the above summation, along with some numbers crunching, it appears that my conclusion will minic the “Not_a_Doc” results.  But as a precaution, I will NOT deposit the investment funds transfer into an identical fund in the ROTH IRA.  I echo the close from the linked post:  

  • “So the discussion of a wash sale seems moot (i.e. no loss was realized).  But your explanations help me learn what to look for next time.  And I’ve also learned a lesson about automatic dividend reinvestments.  Thanks!“

Much obliged, Alan!  (also much obliged, I_Am_Not_A_Doctor on Mon)   

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