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Question about shifting stock funds out of IRA
Old 12-17-2007, 08:53 PM   #1
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Question about shifting stock funds out of IRA

I have a lot of carry-forward losses that can be used to cancel out capital gains.

I have a relatively large amount in my taxable money-market fund that is targeted to be kept as cash or invested in bonds or bond funds, but is intended to be a long-term holding.

I notice that the money-market fund was giving about 5% taxable dividend, while some stock funds in my IRA were giving only about 1%. The stock funds were giving pretty large capital gain distributions.

I figure that it would be better if I swap the stock funds out of the IRA into the taxable account and keep the equivalent amount in the IRA as money-market or bond funds. That would reduce the amount of currently taxable non-qualified dividends.

Although I may be getting a taxable capital gain distribution next year (I waited until this year's distribution before moving), I will be able to cancel it out with my carry-forward losses.

In addition, since the stock funds have run up quite a bit, I would expect them to go down for a while. It would seem that this would give me the opportunity to do some tax-loss harvesting at some point in the future since the new purchases in my taxable account will be at today's price.

Does this seem like a good idea?

Also, would there be any reason I should try to do some sort of selling of appreciated stocks followed by a quick buy-back in my taxable account so I could effectively eliminate my accrued capital gains by cancelling with my carry-forward losses?

It would seem to me that there is no benefit to doing this. If the long-term capital gains rate goes back up, then the carry-forward losses might seem more valuable. The only thing I can think of would be if the government takes away the previous carry-forward losses, but that seems unlikely.

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Old 12-17-2007, 10:37 PM   #2
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Originally Posted by joesxm View Post
I figure that it would be better if I swap the stock funds out of the IRA into the taxable account and keep the equivalent amount in the IRA as money-market or bond funds.
Not quite sure what you mean here. You can't literally "swap" the stock funds out of the IRA into the taxable account.

You can sell the stock funds inside the IRA and then, with that money, buy MM or bond funds. And in you taxable account, use MM money to buy stock funds. Is that what you mean?

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Old 12-18-2007, 09:09 AM   #3
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You can't transfer capital losses out of an IRA/401K. As the other poster offered, you can sell stocks in the IRA and buy bonds, and you can sell bonds in taxable and buy stocks. The CG basis in the taxable stocks will be the cost to purchase the new stocks. There is no meaningful basis for stocks in the IRA as capital gain taxation is not recognized in an IRA, and CG distributions in an IRA will be taxed as ordinary income when eventually withdrawn.

The only exception I know of is a provision for employer stock in 401K plans in which said stock can be withdrawn from the plan as part of a total rollover to an IRA and the stock will have a basis as a taxable investment calculated from the acquisition cost of the stock.

That is as I best understand it.
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Old 12-18-2007, 05:55 PM   #4
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Sorry, I thought I was clear, but let me explain.

I consider my portfolio as a total unit made up of both IRA and taxable accounts. When I said swap, I meant that I would sell some shares in the IRA creating money in the money market fund and simultaneously buy the same amount of shares in the taxable. This would effectively move the stock from the IRA to the taxable account.

When I referred to cancelling the capital gains, I was referring to any future capital gains that might occur in the taxable account.

Since the tax eventually paid on the IRA is at full rate even for long-term capital gains, many have said that you may as well keep things that give non-qualified dividends in the IRA and keep things that might get a lower tax rate such as long-term capital gains in the taxable.

If my plan works as intended, I will move more of the non-qualified dividend income into the IRA, delaying when I pay tax. Since more of my capital gains will occur in the taxable where I have the carry-forward losses to cancel the capital gains, I should reduce my current out-of-pocket tax bill.

One worry I have is that the AMT may somehow penalize me for cancelling my capital gains with losses, but I hope that this is not the case.

It also seemed to me that if I sold the highly appreciated stock funds in the IRA that would lock in my profit within the IRA. If the funds then went down after being moved to the taxable account, I would preserve the total amount of money in the IRA (valuable since it is hard to put money in) while being able to deduct losses that will not be occurring in the taxable account.
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Old 12-19-2007, 02:34 AM   #5
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if any funds in the taxable money are sold at a loss and you rebuy them in the ira within 30days you lose the deduction as a loss. of course you could buy similiar but slightly different ones with out it being a wash sale.

im going the reverse now, the taxable capital gains spun off by some of the funs have been crazy last 2 years . 15-20% capital gains distributions have been normal in alot of funds. coupled with a wacking the last few years with the amt im willing to take my chances in a tax defered account instead and for go the 15% capital gains rate now. . at least interest is only 3-5% now in my taxable
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