If I sell 100 shares of Intel in my regular taxable brokerage account, at a loss, and buy 100 shares of Intel in my IRA account the same day, do I still deduct the loss on my capital gains schedule?
-- Rick Bader
You are not the first person to ask me this question, and until the
Internal Revenue Service
makes a decision, you won't be the last.
While there is nothing definitively written (How many times have you heard that before?), most of our experts seem to agree that if you sell a stock at a loss in a taxable account and buy it back in a tax-deferred account within 30 days of that sale, your loss will be disallowed, thanks to the wash-sale rule. Same goes for the reverse -- sell a loser in an IRA and buy it back in a taxable account within 30 days. The wash sale will apply.
wash-sale rule says that if you sell a security at a loss, you must wait at least 30 days before you can buy back that same security, or the tax loss will be disallowed.
"The language specifically says that if the 'taxpayer' repurchases a similar security, the rule applies, says Brent Lipshultz, a senior tax manager in the personal financial planning group at
in New York. So because you're the one doing the selling and buying, it seems that the wash sale would apply.
Granted, this is not totally clear and others will find room to argue the other side. But if pushed to make a decision about whether your trade would be allowed, "I would lean towards no," says Richard Shapiro, an
Ernst & Young
securities tax partner in New York. He, too, believes that selling in a taxable account and buying the same security back in a tax-deferred one would trigger the wash-sale rule.
Unfortunately, the final decision is up to you and your tax preparer until Uncle Sam gives us a ruling.
(Remember, the loss from a wash sale is not gone forever. If you do get stuck with the wash-sale rule, you can add the disallowed loss to the basis of the repurchased stock. See this recent
Tax Forum for the details.)
Helping an Unborn Child With College
My wife and I are high-income, low-net worth (i.e. young) people who live in New York and are expecting our first child any day. We plan to put away about $5,000 a year for education. 1) Is this enough to fund four years of private college and expenses? 2) Are we better off in the New York saving plan with its conservative approach but tax savings or in a UTMA that we can control? We are not risk-averse and self-direct all of our other investments -- Chris Aries
Congratulations on the soon-to-be birth of your child. My husband and I also are expecting our first child, and I think it ridiculous that, because the costs of college are so outrageous, we all have to start saving while the child is still in the womb!
The tuition at a four-year private institution averages about $25,000 a year, or a bit over $100,000 total with inflation, according to Joe Hurley, author of
The Best Way to Save for College
. By the time your child is ready to hit
, the total cost may be closer to $245,000, according to
But your plan to save $5,000 may not leave you too far off the mark. If you invest $417 ($5,000/12) a month, assuming an 8% return, you'll end up with around $200,000. So if you're really concerned, you may want to pad your annual savings a bit.
The decision to go with a state savings plan or a more self-directed account strictly is an individual one.
As a refresher, because Uncle Sam has done very little to help us save for college, the individual states decided to take action to help their constituents. While each state's plan is different, they all generally allow you to invest tax-deferred dollars on behalf of a future college student. When the money eventually is withdrawn for college, that money will be taxed at the student's income tax rate. In many cases, you do not need to be a resident of the state to use its plan. For more on these plans, check out this previous
When determining which state plan is right for you, investigate what each plan invests in. Then decide if those investment choices are too conservative for your tastes. New York's plan does tend toward the conservative side, says Hurley. The plan has age-based portfolios, so the older your child is, the more conservative the portfolio.
Aside from the usual perks of a state college savings plan, New York also allows you to deduct up to $5,000 of your plan contributions on your state tax return.
Gov. George Pataki
recently signed a bill to improve the range of investment options in the New York plan. While the options have not been specified yet, they should be announced within the next week or so. So it might be worth waiting for them, suggests Hurley.
Uniform Transfers to Minors Act
also may be an option if the state plans are not up to your speed, but there is one big downfall. (As an aside, the Uniform Gift to Minors Act was updated in 1983 and then dubbed a UTMA.)
While you may have control over the actual investment choices in a UTMA, you do not have ownership of the account. When your child hits the age of majority, either 18 or 21 depending on your state, the account becomes his. He then can run off to Bermuda and buy a hut on the beach with your hard-earned money.
At least with the state plans, you control the money purposely set aside for college.
To research all the states' plans, compare investment options, contribution limitations and fees, check out the
College Savings Network's
Web site. And if you missed my recent chat with Hurley about these plans, click
here for the transcript.
Don't forget to send your questions, queries or comments to
email@example.com. And please be sure to include your first and last names.
Investor Forum appears Tuesdays, Thursdays and Saturdays.
TSC Investor Forum aims to provide general investment information. It cannot and does not attempt to provide individual advice. All readers are urged to consult with a professional as needed about their individual circumstances.
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