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FW Finance FAQ: IRA plans, 401(k) plans and rollovers to IRAs - 2014 UPDATE

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nflfan07 said:   It is a dividend reinvestment plan or DRIP that is not located within an IRA or 401k plan. I currently have it in Computershare which I believe is simply a regular brokerage account. I appreciate your insight on any
tax consequences.

  You will need to sell the shares before investing it in a Roth. If you have a gain, you will be taxed on that amount (what you paid minus what you sold it for). To the extent dividends were reinvested to buy more shares, your tax basis will increase by the dividend amount. What this means is that the taxable gain will be lower (less tax owed) since you would have already paid tax on the dividend amount in previous years. The gains could be taxed a short term or long term capital gains depending on how long you have held the shares.

Your broker should send our the relevant tax form(s) next year but it would be good to do some rough calculation to see how much tax you might owe.

There will be no immediate tax consequence for a Roth IRA contribution. However, the Roth will grow tax-free and there will be no tax when you take the money out during retirement.

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