Hold GNMA in IRA?

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Hold GNMA in IRA?

Postby Karl » Sat Jan 26, 2013 5:20 pm

Yesterday I moved about $50K of GNMA I held in my taxable account into my IRA as it yields more than the ST Inv. Grade which is one of my IRA holdings. I figured that if one is going to hold both funds, it made sense to put the higher-yielding asset in the IRA.

Just wanted to check that others agree that move makes sense, even if it's trivial given that it's not much extra yield to shelter when both yield so little (2.2% vs 1.2%).

I sold some ST Inv. Grade in my IRA to buy GNMA, while selling GNMA in taxable account to buy a 50/50 mix of ST Inv. Grade & ST Tax-Exempt; in all cases I make sure to keep balances of every fund high enough for Admiral shares.
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Re: Hold GNMA in IRA?

Postby SpringMan » Sat Jan 26, 2013 6:09 pm

The IRA is a better location for GNMA funds than a taxable account. Since you live in a state with a state income tax you could avoid state tax by holding a treasury fund in your taxable account instead of short term investment grade which is corporate. Treasuries don't pay as much as corporates so it may not make much difference.
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Re: Hold GNMA in IRA?

Postby livesoft » Sat Jan 26, 2013 6:12 pm

If you sold any shares of GNMA at a loss in taxable and bought GNMA in IRA, then you have a wash sale for those number of shares sold at a loss.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Hold GNMA in IRA?

Postby 555 » Sat Jan 26, 2013 7:03 pm

livesoft wrote:"If you sold any shares of GNMA at a loss in taxable and bought GNMA in IRA, then you have a wash sale for those number of shares sold at a loss."

Yes, but they can't be "Substantially Identical" because one is in taxable and the other is in tax-sheltered.
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Re: Hold GNMA in IRA?

Postby Doc » Sat Jan 26, 2013 7:30 pm

555 wrote:
livesoft wrote:"If you sold any shares of GNMA at a loss in taxable and bought GNMA in IRA, then you have a wash sale for those number of shares sold at a loss."

Yes, but they can't be "Substantially Identical" because one is in taxable and the other is in tax-sheltered.


I think that one has been done. You lose. Your "loss" is disallowed and the basis of the new shares is adjsted acordingly. But since the new shares are in the tax advantaged account the basis is irrelevant.

Hey Goggle is a wonderful thing:

Now the IRS has published a ruling (Rev. Rul. 2008-5) that lays down the law: you lose your capital loss deduction if you use this strategy.

The ruling specifies, in addition, that you do not obtain an adjustment to the basis of your traditional or Roth IRA when the rule applies. That means — as we've often warned here — the result is worse than a normal wash sale, because the loss is permanently disallowed rather than being added to the basis of the replacement shares.
http://www.fairmark.com/capgain/wash/wsira.htm
A scientist looks for THE answer to a problem, an engineer looks for AN answer. Investing is not a science.
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Re: Hold GNMA in IRA?

Postby Karl » Sat Jan 26, 2013 8:06 pm

livesoft wrote:If you sold any shares of GNMA at a loss in taxable and bought GNMA in IRA, then you have a wash sale for those number of shares sold at a loss.


Not to worry. I sold for a gain of $1,666, so about 3% capital appreciation. They used to have more capital appreciation, but that was wiped away by some cap gain distributions from GNMA last month.

I hated to realize gains, but I do have a use for them. Since WI only allows $500 in net cap losses per year, either I need some gains to offset or I have to live to be a couple hundred years old.
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Re: Hold GNMA in IRA?

Postby Karl » Sat Jan 26, 2013 8:18 pm

SpringMan wrote:Since you live in a state with a state income tax you could avoid state tax by holding a treasury fund in your taxable account instead of short term investment grade which is corporate. Treasuries don't pay as much as corporates so it may not make much difference.


The yield on ST Treasury is a mere 0.22%, which manages to make the 1.20% on ST Investment Grade looks generous. I always take state taxes into consideration. It was a consideration several years back when I used to own ST Bond Index which holds a substantial amount of treasuries.

Actually, I can't figure out any reason a rational being would buy ST Treasury at current yields. They could instead go with ST Tax-Exempt (which is really an ultra-short bond fund, despite the name) and get a 0.42% yield. That's a better deal even before you considers taxes! As I said above, I did move half the GNMA money into ST TE. I'm willing to make the wild & crazy bet that high-grade munis won't default within the average of one year they have till maturity. Unless one expects doomsday where state & local governments all go belly up, I can't figure out why ST Treasury has any assets at all, other than the inertia of investors not paying attention or deceased investors.
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