Sell Mutual Fund to fund Roth
Case: I have invested in a G&I mutual fund since pre-Roth years and have in excess of 60k invested. The purpose of the investment was for retirement as I was maxed out on 401K and no Roth existed when I started…. Would it make sense to sell a mutual fund in order to use the proceeds to fund the Roth IRA each year?
Permalink Submitted by Alan Spross on Wed, 2008-07-16 04:02
Russ,
It might, but you must have earned income to contribute to a Roth IRA. If you have the earned income, but not so much that your modified AGI is too high to contribute, then the decision rests on other factors.
Since any gains are long term, the tax rate you will pay is a max of 15% on the fund sale, and 15% may well be below your expected marginal rate in retirement. If you have a considerable value in your 401k or traditional IRA, this suggests that your rate in retirement will be higher than if you have no savings. If you have NO Roth assets now, it may make good sense to fund a Roth contribution by taking some LT gains in the fund.
Permalink Submitted by Russ Wood on Wed, 2008-07-16 10:51
thanks for the reply. more details. I am 44 and my wife is 42; our AGI is less than 150k and we both currently have Roths. Collectively, our 401ks and Trad IRAs will be enough to put us in a much higher tax bracket than 15%.
Permalink Submitted by Stephen Sumeraj on Fri, 2008-07-18 18:52
I would also consider what the future holds for the capital gains tax. I do believe it will be going up next year if the Dems gain office. Now might be the most tax efficient time to do sale.