IRAs can be excellent long-term investments, but you may wish to sell an IRA stock from time to time. Whether or not this is wise will depend on several factors.
Harry knows that selling his shares would incur capital gains tax, but believes he can bypass this burden by using them to make charitable donations or passing them along to low-income relatives.
1. When You Reach Your Retirement Goals
Once you have reached a retirement goal, it may be beneficial to sell some of your IRA stock. This may be because other investments provide more liquid solutions (e.g. a savings account from which funds can be withdrawn quickly) or because you’ve made enough money and wish to use it on something more enjoyable.
As part of your retirement savings goals, setting yourself a target to save one-and-a-half times your salary before age 35 and three-and-a-half times it before age 50 is a good way to leverage compound interest to your advantage. This goal can make all the difference.
As you get older, your investment accounts should become increasingly conservative, with greater weighting given to bonds rather than stocks. That doesn’t mean shunning stocks altogether but rather diversifying investments so as to be less exposed to market ups and downs. Also consider holding assets such as real estate or precious metals (gold bars/coins etc) within an IRA which may allow easier liquidation via in-kind distribution.
2. When You Reach Your Personal Savings Goals
Financial experts often suggest setting savings goals as a means of motivating individuals. Setting long-term savings goals, like paying college tuition or saving for retirement, keeps people on track while providing an outline for investing decisions.
However, short-term goals, like planning a family vacation or making an automobile purchase are also worthy of consideration and should be saved towards using more stable savings vehicles like savings accounts or money market accounts.
Withdrawing investment assets at a profit from a taxable account incurs capital gains tax rates; by contrast, Individual Retirement Accounts (IRAs) offer investors tax advantages when taking in-kind distributions of their IRA shares to avoid paying those taxes.
3. When You Have a Set Price in Mind
Many entrepreneurs and business owners can be quite optimistic about the future growth potential of their own companies, especially during early, high-growth years. Some may wish to use their retirement accounts to invest in them directly as an IRA and reap both potential future growth and tax benefits at once – though doing so may prove challenging due to IRS Prohibited Transaction rules.
One difficulty associated with an IRA purchase is finding an unrelated third-party willing to sell shares from someone other than an owner or Disqualified Person, and even then its total ownership percentage must not exceed 50% of total ownership interest in a company.
Another issue relating to company shares in an IRA is their status as UBIT; if an IRA owns more than $1,000 of this type of income during any given year, they must pay income taxes. Over time these costs can quickly add up.
4. When You Have an Emergency
If you need to take an RMD from your IRA and need to sell investments, the optimal method would be making these sales in-kind, in order to avoid tax implications associated with selling it and then having to repurchase it later on in another account.
If your stock value is decreasing, take care to understand why. Be wary of quick reactions like market fluctuations or unexpected company announcements as possible explanations.
If a consumer goods company you own is declining in value, this could be because its entire industry is struggling. Investigate other companies within its industry to see whether there’s an obvious cause for the drop. That way, panic selling won’t occur and instead you can buy back shares later and pay lower capital gains tax rates.