How to Convert Depreciated Stock to a Roth IRA

When you have invested in stock through a traditional IRA or 401(k), a loss in value can be hard to stomach. After all, that's money you are hoping to live on during retirement. However, converting depreciated stock from a pretax retirement account to a Roth IRA can be beneficial. Although you’ll pay income taxes on the amount of the stock being converted, you won’t pay any taxes when you cash out the shares in a Roth IRA at retirement. With a Roth, you could also pass the stock tax free to your heirs. If you leave your depreciated stock in a pretax account, you will have to start taking distributions at age 70 1/2 and pay tax on each distribution.

Get the conversion form from your brokerage company. Your brokerage might make the form available online. Otherwise, request it by mail or email.

Complete the paperwork. You need to type in the number of the account where the stock is held and the Roth account number. Specify the number of shares you want converted. Check the box that indicates you don't want taxes withheld. You will pay the taxes on the conversion, using nonretirement money, when you file your tax return.

Report the amount of the conversion when you file your taxes. You will have to file Form 8606 to inform the IRS of the conversion amount.


  • A non-Roth IRA or 401(k) is funded with pretax money. A Roth IRA is funded with after-tax money, so when you move funds from a pretax retirement account to a Roth, you have to pay taxes on the amount converted.
  • Check off the "in kind" conversion option on the conversion form to signal your brokerage to move the shares intact to the new account, rather than selling them and transferring the cash. Some brokerages make in-kind transfers by default.


  • If bonuses or other windfalls have placed you near the upper limit of the 25 percent tax bracket, converting $20,000 of depreciated stock to a Roth IRA will push you into the 28 percent bracket. You might want to wait until the following tax year to do the conversion.
  • You can't transfer assets from a SIMPLE IRA until after your SIMPLE IRA has been open for at least two years.

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D. Laverne O'Neal, an Ivy League graduate, published her first article in 1997. A former theater, dance and music critic for such publications as the "Oakland Tribune" and Gannett Newspapers, she started her Web-writing career during the dot-com heyday. O'Neal also translates and edits French and Spanish. Her strongest interests are the performing arts, design, food, health, personal finance and personal growth.