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Author: lonwolf Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 120799  
Subject: ESPP to IRA Date: 1/27/1999 3:10 PM
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I have been participating in my company's Employee Stock Purchase Plan for the last year. Foolishly, I have been using it as a forced savings plan. The stock has been doing well, and I would like to use it to open a Roth IRA for myself or my wife. (I don't qualify for a traditional because I also participate in a 401k.) Before I do this, I just have a couple of questions.

1. Can you open up an IRA with stock?

2. If you can, how to you calculate their value for the $2000/year/person limit?

3. Because the stock was bought through an ESPP, how do you take the special tax circumstances into account?

4. What happens if the stock exceeds $2000 before it is deposited into the Account. (It is very close to that right now.)

I don't want to sell the stock and put the proceeds in an IRA, because I would have to pay short term capital gains and income tax on the discount.

Thank you for your help in this matter. I read the Investment Tax guide and the FAQ, but I didn't find an answer.

Thank you,

Rodger
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Author: bliles One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9079 of 120799
Subject: Re: ESPP to IRA Date: 1/27/1999 4:55 PM
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lonwolf queried:

1. Can you open up an IRA with stock?

Sorry, no. All contributions to an IRA MUST be in cash.

2. If you can, how to you calculate their value for the $2000/year/person limit?

Not applicable due to answer #1.

3. Because the stock was bought through an ESPP, how do you take the special tax circumstances
into account?


You need to find out how your company handled it. My company's ESPP just adds the discount amount to my W-2 at the end of the year, then I use the non-discounted value of the stock as the basis. Your company may differ.

4. What happens if the stock exceeds $2000 before it is deposited into the Account. (It is very
close to that right now.)


Not applicable due to answer #1.

I don't want to sell the stock and put the proceeds in an IRA, because I would have to pay short
term capital gains and income tax on the discount.


Sorry, there is no other way.

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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9103 of 120799
Subject: Re: ESPP to IRA Date: 1/27/1999 8:36 PM
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[[ I have been participating in my company's Employee Stock Purchase Plan for
the last year. Foolishly, I have been using it as a forced savings plan. The stock
has been doing well, and I would like to use it to open a Roth IRA for myself or
my wife. (I don't qualify for a traditional because I also participate in a 401k.)
Before I do this, I just have a couple of questions.]]

Before I can answer your questions, you have to answer one for me:

Is your stock savings plan a PRE-TAX plan (you make the contribution free from income tax), or an AFTER-TAX plan (where you simply purchase the stock at a discount, but with after tax dollars)?

Please give me a clue on this and then re-post your questions and I'll be glad to give you the best answers that I have. But I don't really have to time to explain both sides of the issue in the same post.

Sorry...
TMF Taxes
Roy

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Author: lonwolf Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9232 of 120799
Subject: Re: ESPP to IRA Date: 1/30/1999 1:59 PM
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Roy-

The plan is an AFTER-tax plan with the purchase price of the shares determined as 85% (15% discount)of the price of the stock at the close of the market on either the start or the end of the plan period, which ever is lower. Based on that the Questions again were:

1. Can I use these shares to open a Roth IRA

2. If I can, How do I determine the value of the deposit for the $2000/person/year limit.

3. If I do, are there any tax issues that I have to address? (like income tax on the discount, etc.)

4. What happens if the value of the shares goes over the $2000 limit before the account is finalized.


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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9258 of 120799
Subject: Re: ESPP to IRA Date: 1/30/1999 9:01 PM
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[[ The plan is an AFTER-tax plan with the purchase price of the shares determined
as 85% (15% discount)of the price of the stock at the close of the market on
either the start or the end of the plan period, which ever is lower. Based on that
the Questions again were:

1. Can I use these shares to open a Roth IRA]]

Sorry, man...but if it is an AFTER TAX plan, you are basically buying shares on the open market (with a little twist because of the discount). But there is NO WAY you can then transfer these shares to an IRA. It would be like trying to transfer shares that you purchased in your normal taxable account to an IRA in the form of a contribution. It's just not permitted. And since it is an after tax account, a "rollover" is out of the question.

Sorry for the bad news...
TMF Taxes
Roy



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