An individual retirement account, or IRA, is a tax-advantaged savings vehicle. While there are two different types of IRA accounts -- traditional and Roth -- the investment rules for both are the same. As of 2011, there is nothing prohibiting the sale and repurchase of a stock in an IRA account, provided those transactions remain within IRA guidelines.
The most important thing you must know about rapid trading is that stock trades take three days to settle. You place the trade on day one, known as the trade date or "T," but you don't exchange cash for shares until "T+3" -- or three business days following the initial agreement. This means that you do not have access to the cash from the sale until well after the initial trade. Investors generally get around this in one of two ways: have cash on hand or borrow money.
IRA Prohibited Transactions
The Internal Revenue Service is not specific about what types of transactions are allowed in IRA accounts, but it is very clear on what types will get you into trouble. The specific rule in this case is the "no loans" rule. You cannot use your IRA assets as collateral and you cannot take out a loan in your IRA account. This means that you cannot trade on margin, which is a line of credit from a broker that allows more freedom when making frequent, rapid trades, since you can borrow the cash you need to cover the buy.
Rapid Trading in IRA Accounts
If you want to buy back a stock on the same day you sold it, you have two options in an IRA. First, you can have the cash on hand in the account to cover the buy. Alternatively, you can open a specialized IRA trading account, known rather inaccurately as an IRA margin account. These accounts allow IRA owners to use the proceeds of a sale before the settlement date as long as the sale is confirmed and the purchase trade does not have a settlement date prior to that of the sale. In this case, the broker is guaranteeing that you will have cash in your account to cover the purchase trade, even if something goes wrong with the sale. Note that you can never purchase more than your sale proceeds and cash combined.
IRA owners who make a habit of rapid trading must keep a very close watch on trading activity at all times. If at any point the net total of all outstanding trades is less than zero, you have violated IRS trading rules. This can result in nullification of the entire IRA account -- you may owe tax on any deductible contributions and earnings as well as tax penalties of 10 percent.