When Should I Sell My IRA Stock?

When should I sell my IRA stock

Many investors don’t realize that trading an IRA has different tax ramifications than trading in a taxable account. Learn to utilize the wash-sale rule and tax loss rules in order to minimize your taxable gains.

Clients frequently inquire whether selling stocks from their IRA to meet required minimum distributions (RMDs) can help meet RMDs. The answer to this question largely depends on factors like age and how long one has held onto shares in their IRA.

1. Long-Term Gains

Asset allocation is one of the keys to your portfolio’s overall return, as it determines how you invest across stocks, bonds and cash investments. Individual Retirement Accounts provide some flexibility here as you can buy or sell investments within them without incurring capital gains taxes.

When trading through a regular brokerage account, profits are subject to tax at your marginal tax rate; when trading through an IRA however, long-term capital gains taxes apply instead.

An Individual Retirement Account, or IRA, allows investors to purchase various investments such as mutual funds, ETFs, stocks and bonds. But you must be wary of certain restrictions: for instance, collectibles or life insurance contracts cannot be included in an IRA account. Also avoid replacing investments sold at a loss within 30 days prior or post sale in violation of the wash-sale rule as this violates tax legislation and could lead to an unexpected tax bill; consult your tax advisor for advice in this area.

2. Short-Term Gains

When selling stock from an IRA, the IRS treats your profit as ordinary income and requires taxes to be withheld when withdrawing it; however, no income tax is due if earnings remain in your account until age 59 1/2.

If you experience a loss when selling shares from an IRA, record their original “buy slip” cost when originally acquired within your IRA and use this value as the new basis for calculating future gains and losses. Keep in mind that losses must only be used against capital gains of similar type; additionally, any “substantially identical” investments cannot be purchased within 30 days before or after an sale occurs.

Traditional IRAs – such as Savings Incentive Match Plan for Employees (SIMPLE) and Simplified Employee Pension Plan (SARSEP) accounts – allow tax-deductable contributions by employees and self-employed individuals alike. Individuals can fund their IRA through payroll deductions, automatic bank withdrawals or direct deposits.

3. Taxes

Investors can trade stocks in an IRA similarly to trading them in any brokerage account; however, there may be additional considerations associated with trading through an IRA.

Assuming an investor sells shares purchased in an IRA and then repurchases them later through dividend reinvestment, their original cost basis (or original purchase price) will be used to calculate their sale price for tax purposes. Therefore, it’s essential that you keep an accurate record of this cost basis either through trade confirmations or by recording it manually at home.

Remarkably, IRA investments do not incur capital gains taxes when sold, provided an investor does not exceed their taxable income threshold. Therefore, some investors take advantage of losses in IRA accounts to practice tax-loss harvesting; additionally if an IRA investor withdraws money during any given year then income taxes must be paid on that withdrawal as well.

4. Withdrawals

When selling shares from an IRA and purchasing them back through traditional brokerage accounts, they will be subject to ordinary income tax rates. Fortunately, this can be avoided by making “in-kind” withdrawals prior to selling them from an IRA.

Simply transfer the stock out of an IRA into an existing brokerage account of the same broker; this is simply for bookkeeping reasons but will still count as an IRA distribution to Internal Revenue Service purposes.

By taking this strategy, Harry could save himself money on taxes provided that the original purchase price (basis) of stock remains consistent in both accounts; this will ensure when sold at capital gains rates instead of ordinary income rates when eventually sold in future years. But remember to keep your own records as brokers may make errors with reporting basis information sent when receiving distributions from an IRA account.

Raymond Banks Administrator
Raymond Banks is a published author in the commodity world. He has written extensively about gold and silver investments, and his work has been featured in some of the most respected financial journals in the industry. Raymond\\\'s expertise in the commodities market is highly sought-after, and he regularly delivers presentations on behalf of various investment firms. He is also a regular guest on financial news programmes, where he offers his expert insights into the latest commodity trends.

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