Tax-free funding of IRA with non-retirement-plan funds? Any retroactive nontaxation of earnings?

I have a couple of non-retirement-plan Vanguard funds that I bought several years ago when I was 20 and knew very little about federal income tax law. I'd now like to use these non-retirement-plan funds to fund a new Vanguard IRA account with the same funds for tax years 2006 and 2007. Here are my questions:

1. I've received mixed signals from Vanguard about whether doing this would be considered a taxable event in the form of a "sale" that would incur capital gains taxes on any appreciation of the "sold" funds since purchasing them. I can't find anything specifically addressing this issue in the IRS's publications. It seem reasonable to me to view this transaction as basically the equivalent of a rollover, which I know is not taxed, and not a taxable event.

2. If I put one or both of my funds into an IRA for tax year 2006 now, can I defer tax on the portion of the earnings on the contributed fund(s) that would have been deferred had I made the contribution at the start of 2006?

You can't "roll" funds from a non-retirement account into a retirement account, period.

You could open an IRA and fund it (up to the normal annual contribution limit, $4,000 or $5,000 based upon your age) with funds from one of the accounts, assuming that you had at least that much earned income in the tax year that the IRA contribution was from. Any sale of fund assets to do that would be subject to capital gains taxes in the same manner as any sale would be.

A rollover is a move from a pre-tax fund like a 401K or IRA into another pre-tax fund. What you are proposing wouldn't fit this definition.

If you take money from one fund of a family of funds and put it into another, for tax purposes it's generally considered a sale from the first and a purchase of the second. I think that what you're talking about doing would fit the same situation and therefore be a taxable event, whether it's the same fund or a different one, but I'd ask a CPA before I did it to be sure.

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