Loss on stock in IRA / transfer out to take cap loss
Client has non-publically traded stock of a company that is not doing well in his IRA. The stock currently is valued at $20+ per share (based on book value provided by company) but the client can not sell it because it is not publically traded.
Can the client buy the shares from his IRA with cash he holds in a taxable account, thereby moving cash into the IRA and setting up to take the loss (if the company does fail) in his taxable account?
If not, would it make a difference if someone else bought the stock from his IRA?
Thank you.
Permalink Submitted by Alan Spross on Wed, 2009-08-19 20:48
Any transaction between the IRA and a disqualified person is a prohibited transaction. The following lists disqualified persons:
>>>>>>>>>>>>>>>>>>>>>
Following is a simplification of how the
Internal Revenue Code defines disqualified
persons:
• any fiduciary to the IRA, including IRA
trustee and the IRA grantor, because the
owner has the ultimate power to direct
the investments in the IRA
• the IRA grantor’s spouse
• the IRA grantor’s ancestors and lineal
descendants
• spouses of the IRA grantor’s lineal descendants
• anyone providing services to the IRA
(e.g., investment managers/advisers and
the IRA trustee or custodian)
• any corporation, partnership, trust, or
estate in which the IRA grantor or family
member listed above has a 50 percent
or greater interest
>>>>>>>>>>>>>>>>>>>>>
Therefore, the client obviously cannot buy the shares, nor can anyone else included on this list. A different IRA custodian may be needed in order to support the sale of these shares by the IRA to a qualified party. I would start by discussing this situation with the current IRA custodian.
Permalink Submitted by mk foss on Wed, 2009-08-19 20:58
Even if he could buy the shares, a loss may not be available. The custodian would require that the purchase occur at fair market value – any loss would be within the IRA and nondeductible. If the shares were distributed to him, they would be taxed at fair market value when distributed. If the custodian continued to use the book value on the 1099R – the IRA owner would be taxed on tha amount and would have that as a basis. Paying tax on the value (even if a 10% penalty is involved) may cost less than a purchase (which he can’t do anyway).