Roth IRA Contributions from a Taxable Brokerage Account

A fundamental strategy for any U.S.-based DIY retirement planner is to accumulate as much retirement money as possible in a Roth IRA.

Roth IRA contributions and conversions grow tax-free, and withdrawals are tax-free and not subject to required minimum distributions (RMDs).

I didn’t have a Roth IRA for the first 15 years of my investing career. 

Roth IRAs became available in 1998 and took some time to be adopted by discount online brokers and small investors. 

From 1995 to approximately 2010, I primarily invested through my employer-sponsored 401(k) plans, a traditional IRA, and taxable accounts, including brokerage accounts and DRIPs.

I would max out retirement accounts first, then invest any surplus cash into the taxable account.

My Fidelity taxable investment funds (previously at TD Ameritrade) have grown substantially since 1995 and produce more than $1,000 of dividend income each month.

I use some of these funds to supplement spending needs due to the irregularity of my business income.

But the taxable account is producing a dividend income surplus. Instead of reinvesting the dividends back into investments in the same account, I’m transferring the cash to my Roth IRA as a contribution. 

This strategy reduces the future tax burden of the taxable brokerage account (shrinking it), fattens the Roth IRA, and frees my earned income for living expenses.

Can Roth Contributions Come from a Taxable Brokerage Account?

Yes.

You must have earned income to be eligible to contribute, but contributions can come from multiple sources, including checking, savings, and taxable brokerage accounts.

Most people contribute to Roth IRAs out of earned income. 

Roth IRA contributions must be cash contributions, not in-kind transfers (shares).

So, brokerage account holders can either sell investments or accumulate dividends before contributing these funds to a Roth IRA. 

Selling investments can trigger a capital gain and associated tax, so you need to be thoughtful if you’re considering selling investments in a taxable account to make Roth Contributions. 

My recent Roth contributions have been mostly from dividends, but I’ve also sold a few investments as part of my simplification strategy over the next decade, reducing the number of individual stock holdings in favor of ETFs and mutual funds.

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Automation

Contributing a lump sum at the beginning of the year is the best option if possible. Lump-sum investing outperforms dollar-cost averaging if you have the money available. 

If not, another way to contribute regularly without emotional risk is to automate the Roth Contributions.

If your taxable account kicks off enough dividend income, you can divide your contribution limit by 12 and automatically transfer an equal amount on the same day each month. 

Then, set up an automatic purchase a few days later.

This is how I initially set this up, but I decided I wanted more flexibility in the coming year because of some upcoming travel expenses.

For now, I set a monthly reminder and do manual contributions and investments. I’ll likely go back to the automation after the large expenses clear. 

Roth IRA 2025 Contribution Limits

I turned 50 this year, so I get to contribute an additional $1,000.

Roth IRA 2025 Income Limits

My work is more fulfilling now. But my income has fallen significantly since I left my full-time consulting career. Therefore, we don’t always have sufficient income to make consistent Roth contributions.

A lower income makes it easier to qualify for Roth IRA contributions.

If I approach the limits below, I can use SEP IRA contributions to reduce my Modified Adjusted Gross Income (MAGI) and stay eligible — a nice perk for business owners. 

Here’s a table of Roth IRA income limits for 2025. These values continue to rise with inflation (see the image below). 

At least 85%-90% of single tax filers will qualify for Roth IRA contributions in 2025, and more than 90% of married filing jointly filers will qualify.

Prioritize Roth contributions early in your career if possible.

* MAGI: Start with your Adjusted Gross Income (AGI) from form 1040, add back in IRA contribution deductions, student loan interest deduction, tuition and fees deduction, passive loss or income amounts, rental property losses, half of self-employment taxes, adoption expense exclusions, income from U.S. savings bonds, partnership losses from publicly traded partnerships.

Historical Roth IRA Income Limits for Married Filing Jointly

Here’s a chart of Roth IRA income limits since 2006 for married taxpayers filing jointly.

The Streamlined DIY Investor

For many of my working years, I chose to contribute to traditional IRAs to lower our taxable income for the tax year instead of Roth IRAs.

I don’t regret much, but I could have been more aggressive with Roth contributions when I had the chance. 

When it hit me last year that I could make contributions from my taxable brokerage account, that became my plan going forward.

Now that we qualify for the Roth again, contributions make sense to help shrink the taxable accounts and reinvest the proceeds in a more efficient account.

I will shift substantial amounts from the taxable account and pre-tax IRA (conversions) into the tax-free growth vehicle for as long as it makes sense.

Combined, Mrs. RBD and I can contribute $15,000 in 2025. We’ll max out both accounts if possible, depending on spending needs and my business income.

This maneuver aligns with my 10-year simplification strategy to streamline my portfolio and is beneficial for long-term tax planning.

The Roth IRA money will likely be the pool of funds I’ll touch last in retirement.

Featured image via Deposit Photos used under license.