Can You Transfer Stocks Into a Roth IRA?

A Roth Individual Retirement Arrangement (IRA) offers tax-free growth and withdrawals in retirement, provided certain conditions are met. This tax advantage makes it an attractive option for long-term savings. Transferring stocks directly into a Roth IRA involves specific rules depending on the type of account they are held in.

Understanding Roth IRA Contribution Requirements

Direct contributions to a Roth IRA must always be made in cash. While you cannot contribute stocks directly, you can contribute cash and then use that cash to purchase stocks or other investments within the Roth IRA.

The Internal Revenue Service (IRS) sets annual limits on cash contributions. For 2025, individuals under age 50 can contribute up to $7,000. Individuals age 50 and older are permitted to make an additional “catch-up” contribution of $1,000, bringing their total annual limit to $8,000.

Eligibility to make direct Roth IRA contributions is also determined by your Modified Adjusted Gross Income (MAGI). For 2025, single filers can make a full contribution if their MAGI is less than $150,000. The ability to contribute phases out for single filers with MAGI between $150,000 and $165,000, and those with MAGI of $165,000 or more are ineligible to contribute directly. Married couples filing jointly can make a full contribution if their MAGI is less than $236,000 in 2025. Their contribution eligibility phases out between $236,000 and $246,000 MAGI, with those earning $246,000 or more being ineligible for direct contributions.

Transferring Stocks from a Taxable Brokerage Account

Stocks held in a taxable brokerage account cannot be directly transferred “in-kind” as a contribution to a Roth IRA. The IRS mandates that all contributions to an IRA, including a Roth IRA, must be made in cash. This requirement prevents the direct transfer of appreciated securities without first recognizing any gains for tax purposes.

To move the value of stocks from a taxable brokerage account into a Roth IRA, you must first sell the desired stocks within your taxable brokerage account. This sale is a taxable event, meaning any capital gains realized from the sale will be subject to taxation.

Capital gains are classified as either short-term or long-term, depending on how long you held the investment before selling. Short-term capital gains, from assets held for one year or less, are taxed at your ordinary income tax rates, which can range from 10% to 37%. Long-term capital gains, from assets held for more than one year, receive more favorable tax treatment, with rates of 0%, 15%, or 20% for most taxpayers.

After selling the stocks, you will receive cash proceeds from the sale. This cash can then be contributed to your Roth IRA, provided you meet the annual contribution limits and income eligibility requirements. Once the cash is in your Roth IRA, you can use it to purchase new stocks or other investments within the tax-advantaged account. This process ensures compliance with IRS regulations while allowing you to fund your Roth IRA with the value derived from your existing investments.

Converting Stocks from a Traditional IRA

Converting stocks from a Traditional IRA to a Roth IRA is a distinct process from making a direct contribution, and it operates under different rules. A Roth conversion involves moving pre-tax or after-tax money from a Traditional IRA, SEP IRA, or SIMPLE IRA into a Roth IRA. Unlike direct contributions, stocks can be transferred in-kind as part of a Roth conversion.

The fair market value of the stocks at the time of conversion is generally treated as taxable income in the year the conversion occurs. This means any pre-tax contributions and earnings within the Traditional IRA become subject to ordinary income tax rates upon conversion. There are no income limitations that prevent an individual from performing a Roth conversion, making it an option for those who exceed the income thresholds for direct Roth IRA contributions.

A significant consideration during a Roth conversion is the “pro-rata rule.” This rule applies if you have both pre-tax (deductible) and after-tax (nondeductible) contributions across all your Traditional, SEP, and SIMPLE IRAs. The IRS treats all your non-Roth IRAs as a single entity, meaning you cannot selectively convert only the after-tax portion tax-free. Instead, the converted amount is considered a proportional mix of pre-tax and after-tax funds, and only the portion attributable to after-tax contributions will be tax-free. This calculation can lead to a portion of the conversion being taxable even if you only intended to convert after-tax amounts.

To initiate an in-kind Roth conversion, you typically contact your brokerage firm. The brokerage firm is responsible for reporting the conversion to the IRS on Form 1099-R. You, as the taxpayer, are then required to report the conversion on IRS Form 8606, “Nondeductible IRAs.” This form tracks nondeductible IRA contributions and conversions, ensuring proper accounting of taxable and non-taxable amounts, especially if after-tax contributions were involved. It is important to complete Form 8606 accurately to avoid potential penalties or unexpected tax liabilities.