IRA Rules for Wash Sales

By: Eric Bank, MBA, MS Finance

Individual retirement accounts allow your investments to grow tax-free as long as they remain within the IRA. In a traditional IRA, you normally receive a tax deduction for the money you contribute. You treat withdrawals as normal income. Roth IRA contributions receive no deductions but qualified withdrawals are tax-free. Wash sale rules apply primarily to taxable accounts, but certain rules also apply to IRAs.

Wash Sale

A wash sale is the sale and repurchase of the same securities within 30 days. Normally, if you sell shares for a loss, you treat it as a capital gains loss, which offsets capital gains and up to $3,000 of normal income in a given tax year. You can even carry unused capital losses forward to future tax years. However, if you buy back the shares within 30 days, the Internal Revenue Service disallows a loss on the original sale. You instead add the loss to the cost basis of the replacement shares, which means you’ll have a smaller gain or larger loss when you sell the replacement shares.

IRA Shares

Shares held within an IRA do not observe the wash sale rules, because the IRS doesn’t keep track of your gains and losses within an IRA. Except for nondeductible contributions, you pay your marginal tax rate when money exits your traditional IRA. Whether it stems from gains or losses, you treat it all as ordinary income. Qualified Roth withdrawals are tax-free. Because the IRS doesn’t care about your gains and losses inside an IRA, wash sales have no meaning for shares held in an IRA.


The IRS may not care much about what happens within your IRA, but it takes great interest if you try to use your IRA to skirt the wash sale rule. If you sell shares in your taxable account and buy substantially identical shares in your IRA within 30 days, the wash sale rule applies. It also applies if you sell shares in your taxable account and buy within 30 days financial instruments that can convert into the sold shares. Such instruments include convertible bonds, convertible preferred stock, warrants and options.

Cost Basis

If you do a wash sale within your taxable account, you at least get to add the disallowed loss to the cost basis of the replacement shares. However, if you buy the replacement shares in your IRA within 30 days, the IRS disallows your loss, and you cannot add the loss to the cost basis of the replacement shares, because they reside inside an IRA. From the taxation point of view, cost basis loses its meaning inside an IRA. Thus, wash sales are more costly when you repurchase the shares in your IRA.



About the Author

Eric Bank is a senior business, finance and real estate writer, freelancing since 2002. He has written thousands of articles about business, finance, insurance, real estate, investing, annuities, taxes, credit repair, accounting and student loans. Eric writes articles, blogs and SEO-friendly website content for dozens of clients worldwide, including, and Eric holds two Master's Degrees -- in Business Administration and in Finance. His website is

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