USA Two-way swap between Roth and Traditional IRA

[azin]

I have bonds in my Traditional IRA that will gain much more in the next few years than the cash in my Roth IRA that's sitting in a money market fund. How might I move the bonds from my Traditional IRA into my Roth IRA and move an equivalent value of cash from my Roth IRA into my Traditional IRA so that it's an even swap and thereby avoid any tax that would otherwise result from withdrawing or converting funds from my Traditional IRA?

 

[DrStrangeLove]

I'm pretty sure you can't. Contributions to a Roth IRA are post-tax, and contributions to a Traditional IRA are pre-tax. Free transfers between them would give a tax preference that people could exploit to evade tax.

Why do you think that the bonds will gain substantial value in the next few years? Are you making a duration bet or an inflation bet by holding them? If so, then you might see if your Roth IRA has a bond investment option that is very similar to the bonds in your Traditional IRA in terms of interest rate risk characteristics (duration, convexity, indexing, et al.).

 

[azin]

Thank you. The forum didn't email me a notification of your reply. The swap I have in mind has no different effect on taxes than if I sold the bonds in the Traditional IRA now at nearly the same price I paid for them quite recently and then bought the same bonds in the Roth. It would just be harder and require better timing, although the timing shouldn't make a difference of more than 1%. Yes, I'm making basically a duration bet.

 

[Samir]

I'm pretty sure you can't. Contributions to a Roth IRA are post-tax, and contributions to a Traditional IRA are pre-tax. Free transfers between them would give a tax preference that people could exploit to evade tax.

There is no way to do this because the contribution to these IRAs are different. When the contribution rules are the same (like a 401k to a traditional IRA), it is called 'transfer in-kind' and has specific conditions under which it can happen.