Many investors have both taxable brokerage accounts and individual retirement accounts. IRAs encourage long-term investing because the Internal Revenue Service penalizes you for withdrawals before age 59 1/2. You might be able to sell stocks from your taxable brokerage account and buy the same stocks in your IRA, but you must have the right kind of account.
Your custodian might limit the types of assets you can hold in your IRA. For example, if you open an IRA at a savings bank, you might not be able to buy stocks. A self-directed IRA gives you maximum trading flexibility. You can open one at a brokerage or other financial institution and trade stocks, bonds, mutual funds, futures, precious metals, real estate and many other assets. What you give up in a self-directed IRA is the guidance a custodian might have provided in an IRA with a more limited scope.
You cannot simply move stocks from your taxable brokerage account to your IRA. The IRS only allows cash contributions to an IRA. If you own stocks in a qualified retirement account, you can roll them over to an IRA. Otherwise, to “transfer” stocks from your taxable brokerage account to your IRA, you need to sell them, record a capital gain or loss and repurchase them in your IRA. This strategy can lead to a higher tax bill if you sell stocks for a gain. If you sell them for a loss, beware of the wash-sale rules.
A wash sale occurs when you sell stocks for a loss, then repurchase the shares within 30 days. The IRS doesn’t allow you to take an immediate deduction on a wash-sale loss. Instead, you must wait to reap the tax deduction. Do this by adding the disallowed deduction to the cost basis of the replacement shares. This will decrease your gain or widen your loss when you eventually sell the replacement shares. Wash-sale rules apply to sales from a taxable brokerage account coupled with purchases of replacement shares in an IRA. Moreover, this causes you to lose the tax deduction completely because you can’t deduct losses that occur within an IRA.
Special IRA Trusts
You might encounter a situation in which a trustee makes the decisions for your IRA. For example, suppose a parent places an IRA into an irrevocable “special IRA trust” set up for your benefit. After this parent's death, the trustee makes the trading decisions for the IRA until the proceeds are distributed to you later. In this circumstance, you might be bearish and sell stocks from your taxable brokerage account at the same time your bullish trustee is scooping shares up, including the same shares you are selling.
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