Can I Sell a Stock From a Roth Account & Buy it With My Individual Account?
- IRS Publication 550 describes a wash sale as occurring, "when you sell or trade stock or securities at a loss and within 30 days before or after the sale ... you acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA." Tax law further states, "... you cannot deduct losses from sales or trades of stock or securities in a wash sale." If the wash sale was not between IRA accounts or the purchase was made by a taxable (non-IRA) account, the disallowed loss could still be applied to increase the basis (cost) of the acquired stock.
- Under IRC Section 1091, if an individual generates a loss from the sale of stock in a taxable account or IRA and within 30 days purchases substantially identical stock inside another IRA, not only is the recognized loss disallowed, but it cannot be added to the cost basis of the newly acquired investment by virtue of Code Section 1091d. This tax ruling effectively nullifies any tax benefit of creating a loss in one account to offset a gain on the same stock in another account..
- Outside of IRAs or other tax-sheltered plans, wash sales can provide an effective technique to utilize losses to offset gains. For example, an investor with a portfolio of mutual funds or Exchange Traded Funds (ETFs) can generate usable losses to offset existing or future gains on similar securities without running afoul of the wash sale rule. Instead of selling and then immediately purchasing the same ETF or mutual fund, an investor can buy another vendor's securities that have similar investments to those sold.
- The only way IRA losses can be used to the investor's advantage is when all traditional IRAs or all Roth IRAs are liquidated and the aggregate sale value is less than the total after-tax contributions minus any prior withdrawals. All Roth IRA contributions are made with after-tax money and would comprise the cost basis. Nondeductible contributions may also have been made to a traditional IRA and would constitute cost basis to measure against the liquidation value to determine loss. Unlike taxable investments, IRA-realized losses cannot be used to offset gains or taxable income. They are instead treated as "miscellaneous expenses" to the extent that they exceed 2 percent of adjusted gross income.
