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No, You Can’t Contribute Stocks to Your IRA

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Have you ever wondered – “Hey, I have this taxable stock account with my favorite stock (or mutual fund, or bond, or CD, or what-have-you). Can I just transfer the stock over to my IRA as an annual contribution?”

In a word, NO. Contributions to IRAs are only allowed in cash. In order to complete the contribution, you’d have to liquidate the security holding, paying any tax on capital gains, and then use the cash proceeds to make your contribution.

The reason for this is simple – if you contribute the actual stock to an IRA from an account that is not already tax-deferred, any built-in gain escapes taxation. If the contribution was to a Roth account, there would never be taxation (under most circumstances), and you’d be trading capital gains taxation for ordinary income tax deferral and future taxation in the case of a traditional IRA.

Keep in mind, this doesn’t apply to rollovers – even the indirect “60-day” rollovers. You can rollover securities holdings from one IRA (or qualified retirement plan) to another IRA in-kind. If it’s done indirectly (not a trustee-to-trustee transfer), the same securities must be used with the roll-in.

So, for example, if you had an IRA with $50,000 worth of ABC stock, you could distribute the stock (transfer in-kind, rather than cashing it out) to a taxable account, and then within 60 days contribute (again, in-kind) the same stock to another IRA. During that 60-day period, you could do any number of things, such as collect interest or receive a dividend from the stock, which would be taxed at dividend rates. As long as you complete the transfer of the exact same stock within the 60-day window, there is no tax owed on the transfer.

Let me point out that I don’t recommend this sort of activity, I’m just explaining that it is possible.

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