Sales and purchases of stocks, bonds, funds, ETFs or any other security made within an individual retirement account are not subject to tax. This rule applies to all investment transactions, regardless of whether the beneficiary has accumulated capital gains, dividend payments, or interest income. On the other side of the coin are tax losses. When you sell stocks at a loss in a taxable account, you can deduct losses from your profits and even from your regular income up to a limit.
If you sell a stock within an IRA at a loss, you won't get that benefit. If you own stocks or equity funds within a traditional IRA or 401 (k), you don't have to pay taxes on dividends or on the sale of shares (that is, on realized profits) as long as the investments remain in the account. The rules for investing profits from a stock sale in an IRA are the same as if you were using new money. If you use a Roth IRA to trade stocks, you can avoid paying taxes on profits made from stock trading.
However, there are other stocks, such as major limited liability companies (also called MLPs), as well as S companies and LLCs, with different rules that IRA investors should know. Using an IRA for trading can help you postpone paying taxes on profits earned from selling stocks and eliminates the need to file taxes. The IRS prohibitions on investing in an IRA are limited to a list of transactions, such as borrowing money from your IRA, using it as collateral, or selling you property. You cannot short sell shares in an IRA, since you must use it as collateral for the loan, which is a prohibited transaction.
The IRS allows investors to buy and sell stocks in a traditional and Roth IRA as they would with a brokerage account. One of the advantages of using an IRA to trade stocks is that it can postpone paying taxes on the sale of stocks during the year of sale. One of the most advantageous IRS rules for IRAs is that you don't have to pay taxes on any of your stock sales in the year that you sell them. If you have an IRA, you can use IRA funds to buy, sell, and buy back shares in your retirement account as often as you want in a day.
For example, while brokers won't charge you if you trade stocks and most short-term ETFs, many mutual fund companies will charge you an early repayment fee if you sell the fund. An IRA is a tax-advantaged retirement account, and this advantage applies to the tax status of your stock investments.