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June 13, 2007


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I did that just earlier this year to max out my IRA contributions for 2006. Good tip.


The wash sale rule is comments are bogus. From the IRS ( If you sell stock and your spouse or a corporation you control buys substantially identical stock, you also have a wash sale.

If a completely separate person cannot buy it, there's no way you can. And here's the kicker: since you get to add any disallowed loss to the basis of the second purchase, if you do this in an IRA, not only do you not capture the loss initially, YOU LOSE IT FOREVER (since bases mean nothing inside IRAs).

Don't do this.

This page seems to agree with me:

Either way, just wait until the wash sale rule doesn't apply. For small dollars (by definition, IRA contributions are) why all the headache? At worse, you lose 30 days of upside. Yeesh.

We recently received a trial copy of this magazine (more like a newsletter) in the mail. Out of curiosity I read it. This article and a couple others involved, in my opinion, fuzzy logic.

When you sell a security for less than you paid for it, I call that a loss... not a tax deduction. Yes, losses are deductible because they are NEGATIVE INCOME. So if you contribute $4000 to an IRA by selling a security you paid $6000 for, it seems to me that the IRA cost you $6000 regardless of the tax deductions. Assume a 25% tax rate (just to keep the math simple), a $4000 IRA "cost" you $3000 (since you saved $1000 in taxes) but a $6000 IRA "cost" you $4500 ($1500 saved in taxes). Also, like the earlier commenter, I believe wash sale rules look at control, not entities.

If the security involved still has good upside potential, just hold it. Until you sell it you have "deferred" the capital gain (which by the way is max taxed at 15% while IRA distributions are ordinary income). If the security no longer has upside potential - sell it regardless.

Smoke and mirrors my friend. Smoke and mirrors.

I've received various Bottom Line publications over the years and found that the "advice" is short on details, often repeated, and could get you into trouble if you don't look into it further.

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