Skip to main content
Message Font: Serif | Sans-Serif
 
No. of Recommendations: 3
Short answer: No trading you do inside your IRA results in any current tax liability. Only IRA distributions (that is, withdrawals) are taxed.

Long answer: You have received good advice here. I particularly recommend the comments of gurdison. You can trade, realizing losses and gains, as much as you like inside your IRA and incur no taxes on the transactions. Your IRA will, of course, incur trading costs, that is, commissions.

My advice is not to accept advice you get here or anywhere else without checking it out for yourself. DD, that is, due diligence. So, here's a site where you can check out for yourself what you've heard here. http://www.irs.ustreas.gov/forms_pubs/pubs/p590ch01.htm This is publication 590, the official Treasury/IRS document that answers questions like yours. In particular it says

"Two advantages of a traditional IRA are:

• You may be able to deduct some or all of your contributions to it, depending on your circumstances, and
• Generally, amounts in your IRA, including earnings and gains, are not taxed until they are distributed. "

I think that advice in not controversial. My more controversial advice is this: fire your stockbroker and move all your IRA equity investments to a low-cost no-load index fund, such as Vanguard Index 500. Your success in beating the market so far is no guarantee that you will continue beating the market. With an index fund, you will perform just like the market average, and thereby beat most investors and most professional managers over time.

Some references for you:

http://www.money.com/money/depts/investing/fundamentalist/archive/0001.html Did you beat the market? Most investors who say they do are just kidding themselves.

http://www-snde.rutgers.edu/Rutgers/Econ103/beat_S&P500.html
How to Beat 77% of Fund Investors Year After Year (through indexing)

Also, I advise being leery of advice that comes from someone who would benefit from you acting on that advice. I'm not in that group; I have nothing to gain in you becoming an index investor. I don't trade stocks but, as an indexer, I benefit from people who do trade.

This site -- http://www.investorhome.com/emh.htm -- explains what I mean. Exerpt:
Most individuals that buy and sell securities (stocks in particular), do so under the assumption that the securities they are buying are worth more than the price that they are paying, while securities that they are selling are worth less than the selling price. But if markets are efficient and current prices fully reflect all information, then buying and selling securities in an attempt to outperform the market will effectively be a game of chance rather than skill. . . . The paradox of efficient markets is that if every investor believed a market was efficient, then the market would not be efficient because no one would analyze securities. In effect, efficient markets depend on market participants who believe the market is inefficient and trade securities in an attempt to outperform the market.

Chips, cheerfully retired for nearly eight years now, mostly on index funds

Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.