Wash sale rules apply to moving money into IRA?

[Gone Fishing]

I was thinking about going ahead funding our ROTHs given the decline in the market, but don't really have any reallocating to do at the moment.  So if I sell a taxable investment at a loss and buy back immediately in our IRAs, does that present a problem with wash sale rules?

[NoStacheOhio]

What investments? There's usually something close enough.

If we're talking index funds, the standard advice is to find a fund that tracks a different index, but gives similar results. After the time period is up, you can switch back to the original fund if you like.

Or just keep everything where it is an contribute to your Roth as cash becomes available.

[DevoCPA]

A quick google search brought me to Revenue Ruling 2008-5 which says the wash sale rules apply even to your IRA's. What's interesting is that you can't even add the loss to your basis which makes triggering a wash sale with your IRA a really bad idea.

[seattlecyclone]

Yep, buy something sufficiently different in the IRA and sit on it for a month. You don't need to worry about short-term gains when switching back to your preferred fund.

[Shor]

Wash rule applies +- 30 days.
Alternatively, you can buy in your Roth IRA, then wait a month before you sell at a loss in the taxable account.
The outcomes are:
If asset goes up, then the Roth IRA is up that much more, your loss is a little less than expected.
If asset went down, you just take the extra loss in the taxable, Roth IRA would have to recover that anyway.

Only issue is that you're essentially doubling down for a 1 month period (during which time the situation for the security might change), but if you planned to take the loss and hold the asset in the Roth account long term, then this lets you keep the same security without having a 1 month gap.

[MustacheAndaHalf]

A Roth IRA is a black hole for cost basis from wash sales.  If you trigger a wash sale, your IRA will eat the capital loss.  Your Roth IRA has no taxes, so once the cost basis goes into your Roth IRA you lose the tax benefit forever (I think).

You could switch to a similar fund, like S&P 500 versus Total Stock Market.  They can't be "substantially identical" (IRS refuses to define this), which generally means they hold a percentage of different stocks.  Pick something similar but different, and buy that instead in your Roth IRA.

[TaronM]

Interestingly, it does NOT apply to 401k's though, you can sell in one account and then buy the exact same thing in a 401k (or equivalent) without it being a wash sale.  Useful if you have a self-employed 401k.

[MDM]

Interestingly, it does NOT apply to 401k's though, you can sell in one account and then buy the exact same thing in a 401k (or equivalent) without it being a wash sale.  Useful if you have a self-employed 401k.

Correct.

Until the IRS decides that 401ks aren't all that different from IRAs and retroactively applies the wash sale rules to 401ks also.

Or, until someone challenges the IRS ruling about IRAs and a court finds that the IRS ruling was in error, meaning wash sale rules don't apply to IRAs.

Gaze into your crystal ball and decide what the future will bring....

[jabell]

So can anyone prove that what you have in a 401k account will not trigger a wash sale?  Is there a statement anywhere explaining this?

I asked a question very similar related to Betterment in the beginning of Feb.
http://forum.mrmoneymustache.com/investor-alley/betterment-and-tax-loss-harvesting/msg970403/#msg970403

When I personally spoke with staff over the phone at Betterment they said a wash sale could be triggered, and they advised me to meet with a tax adviser.  I spoke with Fidelity and they did not see why a wash sale would be triggered. 

[MDM]

So can anyone prove that what you have in a 401k account will not trigger a wash sale?

No, because one "can't prove a negative" and the IRS has never (AFAIK) issued a declaratory statement to the effect of your question.  But (also AFAIK) they have never applied wash sale rules to someone's 401k account.

See https://www.irs.gov/irb/2008-03_IRB/ar08.html, then compare 408(a) with 401(a) and take your best guess....

[jabell]

Thanks

That makes it a little less gray, and a little more clear. 

[Kriegsspiel]

Interestingly, it does NOT apply to 401k's though, you can sell in one account and then buy the exact same thing in a 401k (or equivalent) without it being a wash sale.  Useful if you have a self-employed 401k.

I was literally yelling "FUCK" until I got to your comment. Thank the gods.