Selling taxable stocks to move into Roth

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boglestan
Posts: 193
Joined: Wed Mar 30, 2011 1:52 pm

Selling taxable stocks to move into Roth

Post by boglestan » Sun Mar 18, 2012 1:38 am

My wife has 26 shares of SBUX, currently worth a total of about $1300, in a taxable account at Fidelity. She's had them for years and isn't sure what she paid for them originally, but the stock is at an all time high right now, so certainly she paid less than the current price. She may have gotten them at a discount, as she worked at Starbucks at the time.

I briefly tried to convince her to sell them and put the money into index funds, but she made it clear that she has sentimental attachment to these stocks, so I didn't push it any further. I don't care because it's not much money in the scheme of things. However, it would be nice to limit future taxes on them. Conveniently, it appears that 2012 is the last year where our 15% tax bracket has a 0% long-term capital gains tax. So it looks like she could sell these stocks right now, pay no tax on the gains, and then put the proceeds into her Roth and re-purchase 26 shares, and never have to worry about taxes on them again? Is this all correct? I'm assuming that a direct transfer is not possible (I did a little googling but the results weren't crystal clear).

xerty24
Posts: 4827
Joined: Tue May 15, 2007 3:43 pm

Re: Selling taxable stocks to move into Roth

Post by xerty24 » Sun Mar 18, 2012 8:36 am

Correct. No direct transfer possible. If you are in the 0% capital gains bracket, you should sell the shares for sure to lock in that 0% rate. Rebuying them is an option, or doing anything else too. If you wouldn't already fund your Roth to the max, it would make sense to put the proceeds in a Roth, where you could buy the stock back or not per her wishes.
No excuses, no regrets.

eclipsis
Posts: 98
Joined: Thu Sep 01, 2011 7:34 am
Location: Ohio

Re: Selling taxable stocks to move into Roth

Post by eclipsis » Sun Mar 18, 2012 9:09 am

Ha, I currently went through a similar situation with my soon to be wife. As we are getting married this year (and likely filing together) last year was the last time she'd be in the 15% bracket. We did sell her high cost, active fund position and paid no federal tax but still owed state tax.

Like your wife, she had no idea what the cost basis was - they were a gift from long ago. We ended up using 0 for cost basis which didn't directly cost on federal because of the 0 rate, but probably cost some in terms of state. The indirect cost on federal was it phased her out of the savers credit which I was hoping to claim some of for her.

livesoft
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Re: Selling taxable stocks to move into Roth

Post by livesoft » Sun Mar 18, 2012 9:23 am

Another possibility to reduce the aggravation and taxes on selling shares with unknown unrealized long-term capital gain is to give away the shares to charity.
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boglestan
Posts: 193
Joined: Wed Mar 30, 2011 1:52 pm

Re: Selling taxable stocks to move into Roth

Post by boglestan » Sun Mar 18, 2012 10:01 pm

State tax is a good point. We're in Oregon and would owe 9% on the gains. Still, I figure it's better to pay the tax now rather than possibly pay much more tax later.

Thanks everyone. :happy

eclipsis
Posts: 98
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Location: Ohio

Re: Selling taxable stocks to move into Roth

Post by eclipsis » Sun Mar 18, 2012 10:28 pm

livesoft wrote:Another possibility to reduce the aggravation and taxes on selling shares with unknown unrealized long-term capital gain is to give away the shares to charity.
Just for my future reference, you could claim this as a charitable contribution? At the value of the stock when you transfer it?

livesoft
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Re: Selling taxable stocks to move into Roth

Post by livesoft » Sun Mar 18, 2012 10:35 pm

Yes, but remember to have the fair market value be deductible on your taxes you would have to itemize on Schedule A. If you do not itemize with Schedule A, you could still donate and not have to put it on Schedule D nor pay LT capital gains taxes on it.
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JW-Retired
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Re: Selling taxable stocks to move into Roth

Post by JW-Retired » Sun Mar 18, 2012 10:54 pm

boglestan wrote: My wife has 26 shares of SBUX, currently worth a total of about $1300, in a taxable account at Fidelity. She's had them for years and isn't sure what she paid for them originally, but the stock is at an all time high right now, so certainly she paid less than the current price. She may have gotten them at a discount, as she worked at Starbucks at the time.
IMO, your plan to sell them, realize the gains, and then buy them back is a cheat. Isn't this the internet age? What's the problem, the records are out there somewhere. You should be able to find out exactly what her cost basis is to the penny. Goggle something. Find her old brokerage records. Starbucks isn't even out of business.
JW
Retired at Last

boglestan
Posts: 193
Joined: Wed Mar 30, 2011 1:52 pm

Re: Selling taxable stocks to move into Roth

Post by boglestan » Sun Mar 18, 2012 11:04 pm

JW Nearly Retired wrote: IMO, your plan to sell them, realize the gains, and then buy them back is a cheat. Isn't this the internet age? What's the problem, the records are out there somewhere. You should be able to find out exactly what her cost basis is to the penny. Goggle something. Find her old brokerage records. Starbucks isn't even out of business.
JW
Huh? A cheat? The plan really has nothing to do with whether we know what she paid for them. It doesn't matter what she paid for them. I only mentioned that wrinkle for the sake of providing a full picture of the situation. We will owe taxes regardless, but if we move them to the Roth, we can avoid any more taxation in the future. That's what my goal is here.

JW-Retired
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Re: Selling taxable stocks to move into Roth

Post by JW-Retired » Mon Mar 19, 2012 6:40 am

Huh? A cheat?
No offense. In my view "cheat" validates it as perfectly OK to do if you want to. Probably everyone missed my totally obscure point..... the irony that everyone is going to lose all their important records because we assume the cloud is protecting us.
JW
Retired at Last

alanf56
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Re: Selling taxable stocks to move into Roth

Post by alanf56 » Mon Mar 19, 2012 7:17 am

Why wouldn't a transfer of the stock be possible?

xerty24
Posts: 4827
Joined: Tue May 15, 2007 3:43 pm

Re: Selling taxable stocks to move into Roth

Post by xerty24 » Mon Mar 19, 2012 3:29 pm

alanf56 wrote:Why wouldn't a transfer of the stock be possible?
Because that's the law - cash only for contributions. If you don't like the law, take it up with your Congressman.
No excuses, no regrets.

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