Brokerage Account Investment to IRA

Submitted by Peter Thomann on Fri, 2017-03-03 00:24

Hi,
Is this permitted? A mutual fund in a taxable brokerage account is transferred as a like-kind transfer into an IRA without originally selling the mutual fund in the brokerage account. In other words, the asset is transferred without incurring capital gains. Vanguard says this is permitted. I always thought annual contributions ($5,500/$6,500) had to be made in cash. Any thoughts?



Submitted by Alan - IRA critic on Fri, 2017-03-03 01:38

  • Regular IRA contributions must be in cash, but rollover contributions can include the transfer of shares. Possibly VG thought that the brokerage account was an IRA brokerage account which was being rolled over to the IRA. A taxable account holding cannot be rolled into an IRA in most cases, but can be in the following two cases.
  • One of the exceptions that does exist is when a holding is distributed from an IRA to the taxable brokerage account. If you change your mind you can then roll that holding into another IRA or back to the originating IRA if you complete the rollover within 60 days. This is still considered an IRA to IRA rollover, with the holding being in a taxable brokerage account for less than 60 days. You cannot sell the holding and then complete an IRA rollover in cash. The same property that was distributed must be rolled over.
  • Another exception applies to your qualified employer plan that distributes a holding to your taxable brokerage account including company shares eligible for NUA. You can change you mind about NUA and roll these shares into your IRA within 60 days. You can also sell the holding in the brokerage account and roll the cash received into your IRA within 60 days, which is something you cannot do with an IRA distribution of shares. Again, this is also a 60 day rollover.
  • So Vanguard might have been right or not. Depends on how the question was asked,  where the taxable brokerage holding came from, and when.

Submitted by Peter Thomann on Fri, 2017-03-03 02:11

Thank you Alan, very good explanation.

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