If I need to sell a bad performing stock in my roth ira, what are the tax consequences?

[Guest tdejar1]

If I have a stock or index fund that is not performing the way I like is there any tax consequences if I sell that stock or fund?this is for a roth ira

[John G]

When you sell a stock that has lost value, you get no direct tax right-off. Just find something better and redeploy your funds. Take some time and try to decide why you bought the stuck and if you are doing something wrong.

You can only get a tax writeoff in the rare instance that you close out all your IRAs and your net is less than your original contributions.... the proceedure is more complicated than what I said, very messy, usually does not actually work out for anyone who has had an account for many years, AND kills your tax shelter and you have to start over again.

Investing involves making good choices, regardless of if we are talking about stocks or mutual funds.

I saw something interesting yesterday on a Motley Fool article about when to sell. To paraphrase: if you can't talk intelligently for one minute about a stock you own or craft a full typed page of information about the company .... then you should not own it. I plan to deploy this "test" when folks ask me about badly performing stocks. I used to ask a few questions: where is the HDQ?, who are competitors, what are the earnings target for coming year?, who is the President or CEO?, what is the growth rate of the business? I find it odd that most folks rarely could answer more than one basic question, even for a well known company.

[dh003i]

I'd say that if you are an individual investor, you should be very knowledgeable about the companies you invest in. If you actually know something about the company, and invested in it for good reason, a short-term loss won't bother you. Whenver investing in a company, you should know some information about it's current financial position, cash-flows, income, customers, competitition, suppliers, and level of government-regulation. You should know about how satisfied the customers are, how afraid the competitors are, and how impressed the supplier are. You should know how competent the management is, how good the R&D unit is, how satisfied employees are, the current status of union-relations (temporary crises, like strikes, are often good times to buy good companies). Furthermore, you should be able to explain why it is you think <I>this</i> particular company is going to grow more than it's competitors.

For these reasons, I think Warren Buffet has good advice for the personal investor. When you start investing, you get a card and 20 punches. After that, you're done. Now, you probably aren't going to invest in a lot of companies very quickly, but you're probably going to make better investment decisions.