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I am in the 15% tax bracket so my capital gains from mutual funds are tax free. Should I reinvest them in the fund or withdraw the gains and invest them in a Roth IRA?

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    You cannot invest in an IRA (of any kind) unless you have compensation (earned income like wages, salary, self-employment income, etc for services performed). Of course, most people do receive compensation, but some don't (e.g. students on fellowship grants, retired people living off their investment income and/or Social Security benefits). The point is, getting capital gains does not, by itself, make you eligible to make contributions to an IRA. – Dilip Sarwate Dec 24 '16 at 17:08
  • @DilipSarwate - this comment is "too good to be a comment" - please consider deleting it, and write it as a full answer to the question. See the meta question Should answers be left in the comments? for more details. – JoeTaxpayer Dec 24 '16 at 17:24
  • @JoeTaxpayer I don't have an answer to the specific question asked: should the capital gains be reinvested in the taxable investment or be withdrawn and invested in an IRA? I was merely pointing out to the OP that he needs to be sure that he is eligible to contribute to an IRA before thinking about what money he can use to make a contribution to the IRA. In short, I think that what I have said above is just a comment and not something that I can expand into a full answer to the question asked. – Dilip Sarwate Dec 24 '16 at 17:49
  • Yes, I do have a existing Roth IRA. – Greg Sacchet Dec 24 '16 at 19:18
  • Greg, you are missing the point. Whether or not you have an IRA (established for a previous year) is not important. (You can continue to hold that IRA). Whether you are entitled make a contribution for this year to existing IRA (or establish a new IRA account for this year by making an IRA contribution) is determined by whether you have compensation for this year. Once that has been settled, someone else will likely come along and discuss whether what you wish to do makes sense or not. – Dilip Sarwate Dec 24 '16 at 23:51
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The source of the $'s you are putting into an IRA is not important. The IRS only cares about having income and does the amount allow you to make a deductible contribution to an IRA, or a contribution to a Roth IRA.

So assuming that you have income this year, and that it is not too large to contribute to a Roth IRA. Then you need to decide if you want to contribute to a Roth IRA and how much you want that to be.

The mechanism is not important. Some people make a monthly contribution. Others wait to the end of the year, or even for their tax refund (because the last day to contribute to an IRA is the end of the tax season). Others when they get a bonus, or with their birthday checks. They choose the method that maximizes their chances of not missing the money.

If the taxable mutual fund is in the same fund family as the Roth IRA it may be easy to have it automatically moved to the Roth. But if that is not the case your plan will still work.

Only you can decide what mix of 401K, IRA, and taxable investments you need to make this year. The actual moves you need to make to achieve that goal is not important. Your plan is essentially a way to rebalance your investment mix from taxable to non-taxable. If it meets your goals, then go ahead.

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