How does Wash Sale rule affect 401K?

Question

If you sell stocks in mutual funds in a non-retirement account at a huge loss, and continue your contribution toward other mutual funds you held in your 401K, can you still claim the loss?

Based on IRS publication page 56 verbiage about Wash Sale, it looks like you can still claim the loss because the publication says "4. Acquire substantially identical stock for your Individual Retirement Account (IRA) or Roth IRA." IRS publication 550 for tax year 2009 mentions nothing about 401K, and 401K is not an IRA so I think I can still claim the loss. It may change for tax year 2010. Hopefully not. Can anyone advise? Thank you.

Answer 1

No earnings or losses are claimed on a 401k. Wash sale rules dont apply. It is a totally different entity. There are different rules for 401k, IRA, and Roth IRA.

Answer 2

If you repurchase the same or substantially identical securities in your 401k, you have no personal loss. Therefore you have no loss on your tax return. The wash sale rules apply.



It may be clearer if you think of the case of a retired person who can control his distributions from his 401k as well as control individual purchases within his 401k. He could sell outside of his 401k, repurchase inside his 401k, and take the distribution.



The absence of the particular verbiage disallowing what you propose does not mean that the IRS allows it.

Answer 3

Wash Sale Rule Ira

Answer 4

You can claim the loss. If it is a different mutual fund, then it is not "substantially identical". Even if it did apply to a 401K, the wash sale rule could apply only if it was the same mutual fund.

Answer 5

A 401K has the same problem--YOU are the beneficiary. How much more related can you get?