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Wash sale rule

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that if I sell an investment in a non-tax-advantaged account at a loss and purchase the identical investment via an IRA within 30 days, it is a wash sale.

It seems logical that going the other way is not a wash sale. If I sell an investment in my IRA (which has a basis of zero) and withdraw the proceeds, they are taxable as ordinary income regardless whether they represent a gain or a loss, right? Therefore, it seems logical to me that if I immediately use the proceeds to buy the same investment through a regular non-tax-advantaged account, it would not trigger the wash sale rule.

Is my reasoning correct?

(Why this matters: With the run-up in stocks at the end of the year, my Required Minimum Distribution is more money than I expect to need this year, so I want to roll the excess into a regular brokerage account.)

P.S. Is there some better term than "non-tax-advantaged account" for a regular brokerage account that is not an IRA, 401(k), etc.? It's such a mouthful, and so clumsy to type. Vanguard calls it a brokerage account, but it calls the IRA a brokerage account too.

Reply to
Stan Brown
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The wash sale rule doesn't prohibit transactions. It just prohibits taking a deduction for a loss when you buy the same stock back, even in a tax deferred account. So if you are selling stock in an IRA and buying it back outside the IRA, it doesn't matter. Assuming the rule applies, the IRA gets no deduction anyway, so nothing is lost.

If I'm wrong on this I'm sure someone will pipe up soon and clear up the error.

You could just call it a taxable account.

Reply to
Stuart O. Bronstein

Stuart already answered (not a wash issue).

Keep in mind, an RMD can be "in kind". i.e. you can distribute shares of stock or funds and the broker will value the distribution as the RMD.

In the old days, this helped avoid the high commissions. Now, it avoids the bid/ask spread and need to execute 2 transactions.

A minor detail many don't consider or are unaware of.

Reply to
JoeTaxpayer

Thank you, I was unaware of it. My Vanguard funds don't have commissions, but avoiding the bid/ask spread would be nice. I'll have to ask Vanguard if they support in-kind distributions.

When the fund shares land in the taxable account, their basis would be the current share price on that day, not as of when I originally bought them in the IRA, right? I'm thinking ahead to when I sell from the taxable account for cash; I'd hate to take capital gains against the much lower share prices from five years ago.

Reply to
Stan Brown

Exactly. If your RMD is $10,000, you'll transfer $10,000 in today's value. That becomes the cost basis in the taxable account.

The issue, if any, is tax withholding. You can make a second transaction in the IRA, and withhold 100% of a smaller, cash sum, or pay directly from a non-retirement account.

This process is my go-to answer for those who complain that they don't need some/all of their RMD and wish to stay invested. No need to sell. Just transfer. In Kind.

Reply to
JoeTaxpayer

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