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Exchanging Mutual Fund Shares in a Roth IRA - Taxable?
Old 06-17-2014, 09:41 PM   #1
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Exchanging Mutual Fund Shares in a Roth IRA - Taxable?

Background: I have recently transferred my Roth IRA and Individual investment accounts from American Funds to Vanguard. I did a direct transfer of the Roth IRA into VFIFX with vanguard, and cashed out the individual account and plan to buy a selection of Vanguard mutual funds.

I should have asked for advice before doing all this because perhaps there was a way to avoid that capital gains tax generated by the sale of the individual account. However, I did not and I have a new question.

Question: If I exchange shares within my Roth IRA account, does this create a taxable event?

Speculation: I'm guessing that it does not because it is within a Roth IRA and that's the magic of a Roth, but I'd like to verify this with someone who knows more than I do.

Thanks!
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Old 06-17-2014, 09:50 PM   #2
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Quote:
Originally Posted by navydavey View Post

Question: If I exchange shares within my Roth IRA account, does this create a taxable event?
No.
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Old 06-17-2014, 10:20 PM   #3
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The only tax problem I think you would have with a Roth is if you sold shares in your taxable account at a loss and bought those same shares in your Roth within the 30 day (+ or -) wash sale window. In that case you get no capital loss on your taxes, and you never get to claim it in the future either.

Other than that, buy and sell freely without tax consequences. You don't have to track basis or report any share sales.
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Old 06-17-2014, 10:24 PM   #4
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Thanks guys.
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Old 06-17-2014, 10:48 PM   #5
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It's not unique to Roth, the same would be true in a traditional IRA: no tax due on a sale or exchange. Instead tax would become due upon a withdrawal from the tIRA; that tax would be at your ordinary income rate rather than the capital gains rate.
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