Self-directed IRA and Equity Trade Losses


G

George

My father has been taking care of a friend's traditional IRA
which currently he manages through Scottrade. He is quite
familiar with trading, but less familiar with the ins & out
of IRA's.

Stemming from continued losses after 2000, he sold two doggy
mutuals which he reinvested in a couple that have done well.

He never received a combined 1099 for the sales which
occurred in 2004 and was wondering how to deal with the
losses expecting to carry the remainder of roughly ($12,000)
in losses as one would with regular losses in equity
trading.

The question is - are there losses that need to be dealt
with or is the IRA different wherein no money was taken out
(funds sat in a connected money market for that IRA) and so
no taxable event has occurred?

He bases the losses on the decline in value of the original
investments, but don't banks do this all the time with no
1099 notice to the owners?

Hope this question was clear enough and thanks for the help.
 
Last edited by a moderator:
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A

A.G. Kalman

George said:
My father has been taking care of a friend's traditional IRA
which currently he manages through Scottrade. He is quite
familiar with trading, but less familiar with the ins & out
of IRA's.

Stemming from continued losses after 2000, he sold two doggy
mutuals which he reinvested in a couple that have done well.

He never received a combined 1099 for the sales which
occurred in 2004 and was wondering how to deal with the
losses expecting to carry the remainder of roughly ($12,000)
in losses as one would with regular losses in equity
trading.

The question is - are there losses that need to be dealt
with or is the IRA different wherein no money was taken out
(funds sat in a connected money market for that IRA) and so
no taxable event has occurred?

He bases the losses on the decline in value of the original
investments, but don't banks do this all the time with no
1099 notice to the owners?

Hope this question was clear enough and thanks for the help.
Gains and losses inside an IRA go unreported. The only time
you have a reportable event is when there is any form of
distribution from an IRA.

It is possible to have a deductible loss in an IRA but that
can only occur if 1. the owner had a cost basis in the IRA
(the IRA contained funds that were not deductible when
contributed or were after tax contributions to a retirement
plan that was rolled over) AND 2. after all distributions
have been made from all IRA accounts, the total amount of
distributions over the owner's life is less than the cost
basis referenced in "1."
 
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H

Herb Smith

George said:
My father has been taking care of a friend's traditional IRA
which currently he manages through Scottrade. He is quite
familiar with trading, but less familiar with the ins & out
of IRA's.

Stemming from continued losses after 2000, he sold two doggy
mutuals which he reinvested in a couple that have done well.

He never received a combined 1099 for the sales which
occurred in 2004 and was wondering how to deal with the
losses expecting to carry the remainder of roughly ($12,000)
in losses as one would with regular losses in equity
trading.

The question is - are there losses that need to be dealt
with or is the IRA different wherein no money was taken out
(funds sat in a connected money market for that IRA) and so
no taxable event has occurred?

He bases the losses on the decline in value of the original
investments, but don't banks do this all the time with no
1099 notice to the owners?
What happens inside the IRA stays in the IRA until
withdrawn. Amounts withdrawn are treated as ordinary income,
not capital gains or losses. This is pretty basic IRA stuff,
maybe he should read Pub 590 and get educated on these tax
deferred plans. I'm sure the IRA custodian (who is not your
father, by definition) has information available on this,
also.

A decline in value of the original investments is not a
claimable loss - tax was never paid on the contribution
(i.e. no basis). It just means that there will be less to
pay tax on when distributions are made in retirement (after
age 59-1/2).
 
Last edited by a moderator:

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