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Swapping Out IRA Assets For Personal Assets

This question comes up frequently, usually in conjunction with a Roth IRA. The account owner wants to trade an asset inside the IRA or Roth IRA for an asset owned outside of the IRA. There are two general variations here. One is that the asset is expected to appreciate greatly, in which case the owner wants to get it into a Roth IRA so the appreciation will never be taxed. The other is that the asset has lost value and may continue to do so, in which case the owner wants it out of the IRA so they can take a deduction for the loss.

In either case, the answer is the same. You cannot self deal with your IRA. You cannot exchange assets with your IRA. In fact, the only contributions that can be made to an IRA or Roth IRA are cash (and you must have earned income in order to make a contribution).

The only time you can put assets other than cash into an IRA is when you are transferring the asset from one IRA or plan to another. In that situation, you must put the same asset you received from the first account into the second account. You cannot take IBM stock out of your IRA and replace it with McDonald’s stock. If you take out IBM stock, you must put IBM stock into the second account.

Any self dealing is a prohibited transaction which will result in a complete distribution of the IRA and the assessment of taxes and penalties, if applicable.

By IRA Technical Consultant Beverly DeVeny and Jared Trexler
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*Copyright 2010 Ed Slott and Company, LLC


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