If I have stock in a company purchase plan that is being discontinued

[Guest Macfesto]

All responses are appreciated, thanks!

[John G]

Regular and Roth IRAs must be funded with cash. I know of no exceptions.

To "use" the stock, you will have to sell it. The tax implications of a sale are not clear, perhaps you will get favorable long term capital gains treatment. Talk with you company and an outside accountant before doing anything.

Another possibility is to borrow against the stock (margin) to fund your IRA. Some hurtles to surmount: the stock is listed, trades at a price above $5 and has sufficient volume for a broker to code it as marginable.

[pjkoehler]

The answer to your question depends on whether the "company purchase plan" is a Code Section 401(a) qualified plan. Your question suggests that you would like to rollover the stock held in an after-tax stock purchase plan to establish a Rollover Roth IRA. There are only two types of contributions that are permitted to a Roth IRA: (1) regular contributions and (2) qualified rollover contributions. Reg. Sec. 1.408A-3, Q&A-1. The maximum aggregate amount of regular contributions to a Roth IRA for a taxable year is the same as the maximum for the traditional IRA ($2,000, or 100% of compensation, if less), subject to certain phaseout rules. Reg. Sec. 1.408A-3, Q&A-3. The "company purchase plan" you refer sounds like an "employee stock purchase plan," described in Code Sec 423 (ESPP), which is not a 401(a) qualified plan. Neither the stock received from such a progam, nor the proceeds from the sale of such shares, would constitute a qualified rollover contribution to a Roth IRA, or for any other purpose. The net gain on the sale of the ESPP stock would not constitute "compensation" for purposes of determining the regular IRA contribution limit either because "compensation" for this purpose does not include earnings or profits from the sale of property. Reg. 1.219-1©

[This message has been edited by PJK (edited 04-12-2000).]

[This message has been edited by PJK (edited 04-12-2000).]

[This message has been edited by PJK (edited 04-12-2000).]

[This message has been edited by PJK (edited 04-12-2000).]