Wash Sale Rules Apply to Solo 401k Plans and IRAs

While IRS Revenue Ruling 2008-5 December 21, 2007 references IRAs, it is safe to say that this ruling also applies to solo 401k plans as is most often the case.  This Revenue Ruling states that the wash sale rules will apply when an individual sells a stock at a loss and buys the same stock in an IRA or Roth IRA within 30 days before or after the sale. The loss on the sale of the stock will be disallowed AND there is no increase in the cost basis of the stock in the IRA or Roth IRA. Since this is a Revenue Ruling as opposed to a Private Letter Ruling, it is authoritative for all taxpayers, so everyone can rely on this ruling as the law.


An individual with 200 shares of stock with a basis of $2,000 sells the shares for $800 resulting in a loss of $1,200. The next day the individual causes the pretax solo 401k or Roth Solo 401k to purchase 200 shares of the same stock. The $1,200 loss on the sale of the stock is disallowed AND the basis in the pretax solo 401k or Roth solo 401k is not increased. The $1,200 loss is never recovered when the stock is sold or when distributions are taken from the solo 401k.


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About Mark Nolan

Each day I speak with energetic entrepreneurs looking to take the plunge into a new venture and small business owners eager to take control of their retirement savings. I am passionate about helping others find their financial independence. Having worked for over 20 years with some of the top retirement account custodian and insurance companies I have a deep and extensive knowledge of the complexities of self-directed 401ks and IRAs as well as retirement plan regulations. Learn more about Mark Nolan and My Solo 401k Financial >>


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