When Should I Sell My IRA Stock?

Retirees who take RMDs may need to liquidate investment shares in order to access cash quickly in retirement.

Contrary to taxable investment accounts, individual retirement accounts (IRAs) do not require you to report stock sales as income or pay capital gains tax when holding them long-term. But stocks within an IRA may prove challenging to manage successfully over time.

1. When You’re Ready to Cash Out

Most individuals invest in an IRA to reach a personal savings goal – be it retirement savings or income generation via stocks in a moderately down market.

Traditional IRA profits are only subject to tax when they’re withdrawn from an IRA, not when sold; that is why investors frequently take RMDs (required minimum distributions) prior to selling any stocks from their account.

RMDs are calculated based on your life expectancy using the IRS formula; most IRA custodians will do the calculations automatically for you. For self-employed or small business owners who contribute regularly, SEP or SIMPLE IRAs could offer greater savings as taxes on contributions are paid upon contribution rather than at withdrawal time.

2. When You’re Not

The IRS provides an extensive publication (Publication 590-B) detailing IRA distribution rules, so it would be prudent to consult your financial or tax advisor before withdrawing money from an IRA. Typically speaking, withdrawing cash should only occur if it can be reinvested within 60 days without incurring taxes and penalties from doing so.

If you are near or at retirement age, RMDs may become mandatory once reaching certain ages. In such a case, in-kind distributions may be the best way to avoid incurring penalties for early distributions.

Reduce Your RMD By Converting Stocks Into Taxable Account

3. When You’re in a Loss

Investing stocks through a taxable brokerage account offers investors the ability to offset losses with future gains or even regular income; investors trading within an IRA do not enjoy this benefit and must adhere to the “wash-sale rule”.

Some IRA owners may find themselves forced to cash out investments when the market declines, particularly if they’re using these funds for non-investment purposes such as buying a house, covering medical costs or starting their own business. It is essential in these instances that withdrawals be carefully scheduled in order to minimize penalties.

Some investors might have an affinity for a stock and wish to preserve it within their IRA, particularly if they believe it will make a comeback. In such a situation, an in-kind distribution may provide the ideal way of protecting it while avoiding capital gain taxes.

4. When You’re in a Gain

One advantage of trading stocks within an IRA is that when withdrawing funds from it, stock sales don’t count as ordinary income and are taxed at your marginal rate – while profits that remain inside don’t qualify for lower long-term capital gains rates.

Once you reach age 70.5, the IRS requires that you begin taking minimum distributions from your traditional IRA. But not everyone wants to liquidate their stock shares and face an income tax bill at that point; you may ask your IRA custodian instead to distribute these shares directly into a taxable investment account without first liquidating them first.

If you want to liquidate some IRA shares, try selling before the market dips again; otherwise, you could regret selling at such a crucial moment and missing another rally. On the other hand, if your company’s stock will rebound quickly without forcing this issue further, why should you wait?

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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