Wash Sale and IRAs, 401(k)s, and Spouses

Submitted by Amar Patel on Tue, 2017-01-17 02:37

I have a loss in an international equities mutual fund held in a brokerage account. I think it is time to move on. But I’m looking to avoid wash sale implications, because I do hold the same mutual fund in a Roth IRA, which I want to sell too. But the position held in the Roth IRA is showing a gain (albeit a small one).

So do I need to spread my sell orders apart from each other in this case, to avoid wash sale violations? And note that I now hold other international ETFs, in both the brokerage and IRA. The last time I bought these international ETFs was just last week, for both accounts. So I’m guessing I need to wait another 30 or so days before selling the losing mutual fund too?

And what about my wife’s 401(k)? In my 401(k), I don’t hold any international mutual funds. But my wife does in her 401(k), and her last purchase was made last week too. And she too holds the same international ETFs as I do in her brokerage and Roth IRA accounts, and her last purchases of those ETFs was last week too. I only bring up the spouse because I read online that the IRS may consider her activity too, since we file jointly.



Submitted by Alan - IRA critic on Tue, 2017-01-17 03:36

  • For the IRA, you could sell both the funds and ETF shares before you sell the taxable shares with the loss. The Roth shares are not replacement shares if you sold them before you sold the same brokerage shares. It’s that or wait out the 30 days.
  • The wash sale rules do not apply to 401k accounts so you can ignore what is in your wife’s 401k. However, if she has the same situation in her brokerage and Roth accounts as you do, she will have to do the same and be sure that both of you sell in your Roth before you sell the same shares for a loss in the brokerage accounts.
  • In the future, it will save alot of trouble if you use surrogate securities that act very closely with each other instead of using the exact holding. That way the shares will not be substantially identical.

 



Submitted by Amar Patel on Wed, 2017-01-18 01:35

  • The more I read about wash sales around the web, the more I saw discussions about “restrictions” on buying activity within 30 days before or after a sale that involved a capital loss, in order to claim the loss on tax returns.  I saw nothing about similar restrictions on *selling* activity, whether for gain or loss, from any other account, for either spouse on a joint return.  Is that right?  If so, what is the implication of the first bullet in Alan’s last response?
  • To be most conservative, I can say that any international fund or ETF I own overlaps with others I own and are thus “substantially similar”, no?  Normally I would think that creates unnecessary complications.  But in this case, it seems that all I might have to do is suspend all international equities buying activity for 30 days for both me and my wife, sell the losing fund from the brokerage, wait another 30 days, then resume international equities buying again.  Right?


Submitted by Alan - IRA critic on Wed, 2017-01-18 02:46

  • If you sell the shares that would have been replacement shares before you sell the same shares in the taxable account, the Roth shares will not be replacement shares because they do not exist when you sell the other shares. If you did not sell those shares until after you sold the taxable shares, then they would be replacement shares.
  • As for being substantially identical, two holding that are just similar are not considered substantially identical. From a practical standpoint no all world international fund would ever be considered substantially identical to another such fund. However, two different S&P 500 index funds or ETFs would be substantially identical since they would hold the same 500 issues. So for international in particular it is pretty easy to find a surrogate fund that is very similar with no chance of it being considered substantially identical. You probably do not have a substantially identical situation here unless you hold the exact symbols in both accounts.


Submitted by Amar Patel on Wed, 2017-01-18 15:32

  • Held in my brokerage account are: RSP (a type of S&P 500 index ETF), SCHM (a US midcap index ETF), FNDA (a US smallcap index ETF), FNDF (a developed market international equities ETF), FNDE (an emerging market international equities ETF), and ARTIX (the mutual fund with a loss that is to be sold)
  • Held in my wife’s brokerage account is the same as my brokerage except no ARTIX
  • Held in my Roth IRA are: RSP, FNDF, SCHZ (a bond ETF), and ARTIX (this is showing a slight gain, simply from having bought at a different time than in brokerage)
  • Held in my wife’s Roth IRA is the same as my Roth IRA except to ARTIX
  • Held in my 401(k) is a S&P index fund, a US midcap index fund, and a US smallcap index fund
  • Held in my wife’s 401(k) is a US all-cap fund and an international fund (don’t know the ticker)
  • The goal over the remainder of the year is to continue building positions in all of the items above except ARTIX, which is to be liquidated in both my brokerage and my Roth IRA
  • So I was thinking, to be conservative, to halt all international fund/ETF buying for 30 days since last Friday (the last purchase of international funds/ETFs across all of these accounts); I’ll keep the other buying going
  • Then, after 30 days, sell the ARTIX in the Roth IRA, then wait 30 days to buy the other international funds across all the accounts
  • Then run the cycle 1 more time, this time to sell the ARTIX in the brokerage (i.e. wait 30 more days, then sell the fund with the loss, then wait 30 more days to resume normal activity)
  • I can then, towards the end of this year, make sure my allocations are balanced as needed


Submitted by Amar Patel on Thu, 2017-01-19 04:42

I’m not following the concept of replacement shares as discussed in this example by Alan.  The mutual fund purchase in question (ARTIX), the one showing a loss in the brokerage account, was bought almost 10 years ago.  The same fund (ARTIX) was also bought for my Roth IRA almost 9 years ago.  I stopped automatically reinvesting the dividends from this fund a few years ago and have not made any other purchases of this fund since, in any account (neither has my wife).  Instead, I’ve focused on purchasing index ETFs starting 1-2 years ago, including FNDE and FNDF (for foreign equities, similar to ARTIX in that way but demonstrably different too), in both the brokerage and Roth accounts, for me and my wife.  So how does the replacement shares concept apply to ARTIX here?  The examples I’m reading about online seem to discuss purchases only within +/- 30 days.  The only international equities funds bought recently (outside of the 401(k)) were FNDE and FNDF.  ARTIX hasn’t been bought for any account in years.



Submitted by Alan - IRA critic on Thu, 2017-01-19 18:56

Replacement shares are the ones that cause a sale to be a wash sale. Since ARTIX shares were all acquired far outside the 61 day wash sale window and you are not going to buy any more shares of ARTIX, a sale could not produce a wash sale.



Submitted by Alan - IRA critic on Thu, 2017-01-19 18:57

Replacement shares are the ones that cause a sale to be a wash sale. Since ARTIX shares were all acquired far outside the 61 day wash sale window and you are not going to buy any more shares of ARTIX, a sale could not produce a wash sale.



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