Are you allowed to sell a stock in a tax advantaged account and immediately buy it back in a regular account?

Question

I want to sell some stock in my Roth and recognize some capital gains. I also want to immediately buy the stock back in a regular brokerage account. Are there any rules against this? If not, seems like a great idea to lock in those gains in an account where you don't pay any capital gains tax.

If you are allowed to do this, it seems like you can abuse it. Example: in illquid stocks with a wide bid-ask spread, one can sell and buy at the same time using one's own tax-advantaged account and regular brokerage account-recognizing the gains in the IRA and the losses in the regular one.

Answer 1

There shouldn't be any tax problem.

But why would you buy a stock EXPECTING a capital loss?

If you really expect the stock to go down don't buy it. If you expect a down-turn in the market [in that stock or in the general market], go into cash or short term bonds that won't get hit with capital losses.

Answer 2

That will be fine. You contributed money into Roth IRA with your after tax dollar (you already pay taxes on it.) That is the intention of Roth IRA. The ideal situation for the current government policy is bankrupt the SS system and encourage private saving with your own risk.

By the way you may refer to the wash sales rule.

Wash Sales

You cannot deduct losses from sales or trades of stock or securities in a wash sale.

A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:

*

Buy substantially identical stock or securities,
*

Acquire substantially identical stock or securities in a fully taxable trade, or
*

Acquire a contract or option to buy substantially identical stock or securities.


If you sell stock and your spouse or a corporation you control buys substantially identical stock, you also have a wash sale.

If your loss was disallowed because of the wash sale rules, add the disallowed loss to the cost of the new stock or securities. The result is your basis in the new stock or securities. This adjustment postpones the loss deduction until the disposition of the new stock or securities. Your holding period for the new stock or securities begins on the same day as the holding period of the stock or securities sold.

Example 1.

You buy 100 shares of X stock for $1,000. You sell these shares for $750 and within 30 days from the sale you buy 100 shares of the same stock for $800. Because you bought substantially identical stock, you cannot deduct your loss of $250 on the sale. However, you add the disallowed loss of $250 to the cost of the new stock, $800, to obtain your basis in the new stock, which is $1,050.

Example 2.

You are an employee of a corporation that has an incentive pay plan. Under this plan, you are given 10 shares of the corporation's stock as a bonus award. You include the fair market value of the stock in your gross income as additional pay. You later sell these shares at a loss. If you receive another bonus award of substantially identical stock within 30 days of the sale, you cannot deduct your loss on the sale.

Thereby, as long as you are not realizing the losses (taking the loss on the tax return now), the scheme will work.

This rule is in place to prevent everyone try to sale at DEC. 31. and buy back at Jan 2. That will create panic for the stock market.

Answer 3

What type of reverse merger was this? Was it a , foreign company, multiple state, 338 transaction, S-corp or LLC, a tax-free reorganization under IRC Section 368? There can be different tax implications involved. Or was this a transaction through your brokerage firm? How did distributions reduce your cost basis to zero? Or were the distributions basically you original contributions? Just trying to make sure something isn't being overlooked here. Like the others have replied what happens now in your IRA does nor affect this transaction. Is this a non-deductible traditional IRA? Just thinking of keeping track of your tax basis for you future withdrawals.