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Hello All,

I'm in my late-20s with a small mutual fund portfolio I put together five years ago through American Funds and Van Kampen via Edward Jones. I opted for a general account with Class A shares and not for an IRA or Roth IRA, as I was unsure at the time exactly how long I would be keeping the investments for and, ultimately, what the money was actually going to be used for.

Now that I am considering earmarking the investments for retirement, I'm interested to know the tax implications of selling my shares and/or moving the funds into an IRA or Roth. Is it at all possible to roll from a general account into an IRA? Is the initial tax hit going to offset tax savings? We're not talking about a whole lot of money here -- the entire portfolio is worth ~$5000.

Any advice would be appreciated!

-Narn Ceredir


It's a shame you chose the General account (I presume, a taxable account) rather than a Roth IRA. Even if you were not sure on the plans for the funds, the Roth IRA offered the opportunity to withdraw the contributions with no tax or penalty. What's done is done, so let's move forward.

Contributions to an IRA have to be cash, so you would have to sell the funds and make a cash contribution to fund the IRA. The tax bite depends on a couple of items
1. The sum of your contributions (or the basis of the account), B
2. When the gains (or losses) accrued.
- Gains in the first 4 years would get taxed at long-term (LT) capital gains rate 15%
- Gains less than a year old, would get taxed at a short-term capital gains rate.


Your reference document for IRA matters (Traditional or Roth) is Pub 590
http://www.irs.gov/publications/p590/index.html

You get an immediate tax benefit from making contributions to a traditional IRA, but you have to determine whether your income level allows you to make a contribution to a traditional IRA (Information in Pub 590).


Hohum
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