Implications of a wash sale in IRA?

[Psychstache]

So, I screwed up and accidently have a wash sale in my IRA (meant to click buy $100 of fund, instead sold $100). When i got the mistake, I smacked my forehead and submitted a buy order for $200 (the original $100 i meant to invest plus the shiny new $100 i got from the sale). I completed the order and forgot about it.

The other day I was reviewing my accounts and noticed a W code on my fund. It was (and is) marked as a wash sale, which is fair from my reading of the rules. My question is: Does this matter? Everything I read on wash sales talks about tax implication, but this is inside an IRA, so can I ignore it? Or is there something I need to (can?) fix?

[bacchi]

You can ignore it. There is no tax loss or cost basis to worry about.

[seattlecyclone]

If it's all within the IRA there's no effect. The thing to be careful about is that IRA transactions can trigger wash sales in your taxable account.

Suppose you sell some VTI for a loss in your taxable account, and within 30 days before or after you automatically reinvest dividends from VTI in your IRA. That would make the taxable sale a wash sale (to the extent that the number of shares you sold in your taxable account was less than or equal to the number of shares you purchased in your IRA).

If both of these transactions happened in taxable it would be no big deal: you don't get to claim the benefit of the loss this year, but it gets added onto the basis of the replacement shares and you get to benefit from that loss when you sell those shares. A bit annoying to track all that, but otherwise it all adds up in the end.

With the mixed taxable/IRA wash sale the IRA has no meaningful concept of cost basis to add the disallowed loss onto, so you're just out of luck. For this reason you may find it worthwhile to either hold different assets in your IRA from your taxable account, or be very careful about when you buy in the IRA (and disable automatic investments) so as not to inadvertently trigger a wash sale.

[Psychstache]

If it's all within the IRA there's no effect. The thing to be careful about is that IRA transactions can trigger wash sales in your taxable account.

Suppose you sell some VTI for a loss in your taxable account, and within 30 days before or after you automatically reinvest dividends from VTI in your IRA. That would make the taxable sale a wash sale (to the extent that the number of shares you sold in your taxable account was less than or equal to the number of shares you purchased in your IRA).

If both of these transactions happened in taxable it would be no big deal: you don't get to claim the benefit of the loss this year, but it gets added onto the basis of the replacement shares and you get to benefit from that loss when you sell those shares. A bit annoying to track all that, but otherwise it all adds up in the end.

With the mixed taxable/IRA wash sale the IRA has no meaningful concept of cost basis to add the disallowed loss onto, so you're just out of luck. For this reason you may find it worthwhile to either hold different assets in your IRA from your taxable account, or be very careful about when you buy in the IRA (and disable automatic investments) so as not to inadvertently trigger a wash sale.

Interesting and good to know. This is not an issue for me as my MPP is that I have so much tax advantaged investment space (2 403bs, 2 457s, 2 HSAs, 2 IRAs) that I can never fill it up and thus don't have a taxable account.

[MustacheAndaHalf]

If it's all within the IRA there's no effect. The thing to be careful about is that IRA transactions can trigger wash sales in your taxable account.

Suppose you sell some VTI for a loss in your taxable account, and within 30 days before or after you automatically reinvest dividends from VTI in your IRA. That would make the taxable sale a wash sale (to the extent that the number of shares you sold in your taxable account was less than or equal to the number of shares you purchased in your IRA).

If both of these transactions happened in taxable it would be no big deal: you don't get to claim the benefit of the loss this year, but it gets added onto the basis of the replacement shares and you get to benefit from that loss when you sell those shares. A bit annoying to track all that, but otherwise it all adds up in the end.

With the mixed taxable/IRA wash sale the IRA has no meaningful concept of cost basis to add the disallowed loss onto, so you're just out of luck. For this reason you may find it worthwhile to either hold different assets in your IRA from your taxable account, or be very careful about when you buy in the IRA (and disable automatic investments) so as not to inadvertently trigger a wash sale.

Is it common for you, as a professional, to see wash sales between IRAs and taxable accounts?  Does the IRS require Vanguard to track a wash sale between an IRA account and individual taxable account?

I've always been curious how much of a priority this is for the IRS.  I tend to have similar investments in both IRA and taxable, but also make similar moves.  In the past I recall waiting to rebalance to avoid wash sales, with the IRA / taxable mix being the most risky.