Can I convert a brokerage account into an IRA and claim the tax benefit?

December 16, 2011 11:26 AM

Can I convert my regular brokerage account into a (non-Roth) IRA and claim the tax benefit?

I have tax liability this year, and I would like to offset that by making a contribution to an IRA.

I don't believe that I will be able to come up with additional cash to make this contribution prior to tax day.

I recognize that I would have to sell all my positions, pay capital gains tax, and reinvest the remaining proceeds if I wanted the funds to end up in a Roth IRA.

But if I want the funds in a traditional IRA, can I just convert the account from brokerage to IRA and then claim the tax benefit?

If I can do this, what are some pros and cons that I might not be considering about the idea.

Thank you for your help!

posted by jefficator to Work & Money (4 answers total)

This is something it's worth paying an accountant to do properly. Even if you're allowed to do what you're suggesting, getting the paperwork correct is probably going to be No Fun At All. If you've got enough money to have anything worth talking about in a brokerage account, you've got enough money to afford an accountant.
posted by valkyryn at 11:29 AM on December 16, 2011

Best answer: No. Official word from the IRS: "Contributions, except for rollover contributions, must be in cash."

A touch more detail here, but - sorry - the answer is still no.
posted by Mr.Know-it-some at 11:46 AM on December 16, 2011

Don't think you can make an in-kind contribution to an IRA. Basically you have to pay the cap gains taxes on the shares, then sell them, contribute the case to the IRh and then re purchase the shares. I'm guessing some broker out there would do this for you w/ o actually making the trades, but would sell enough shares to cover the taxes.

Surely you can see why they require this - it would be an easy way to tax defer cap gains.

Then obviously its just like making a cash contribution.
posted by JPD at 11:47 AM on December 16, 2011

If you have any losing positions, you can sell a combination of losers and winners that nets to zero and have little to no capital gains for the the year. This is the approach we've taken in slowly shifting some funds out of a regular brokerage account into a tax sheltered retirement account.
posted by drlith at 6:02 AM on December 17, 2011