On this page
An IRA charges nothing on turnover, dividends, or rebalancing. It also cannot borrow, which rules out one whole class of strategy, and it can destroy a loss harvested next door. Three limits, all easy to hit.
It cannot borrow
So it cannot short
- Lending money to a retirement account is a prohibited transaction, so no custodian extends margin to an IRA.
- A short position needs borrowed stock and a margin account. Inside an IRA it does not exist.
- Any long/short idea becomes long-only, or at best 130/30 inside a fund that holds the short book for you.
Long-only keeps about half
The edge shrinks before it is sheltered
- The published result: a long-only constraint typically halves a strategy's information ratio.
- The ideas that survive best are slow ones with broad tilts; fast ideas that lean on shorting lose most of their value.
- A backtest with shorts in it does not describe what the IRA will hold.
It destroys a harvested loss
Permanently
- Sell at a loss in the taxable account, buy the same fund in the IRA within 30 days, and the loss is disallowed with no basis adjustment.
- Automatic 401(k) purchases of the same fund are the usual way this happens.
- The wash-sale read covers the rest.
Why the first limit matters for location
The location rule says high-turnover exposure belongs in the IRA. Many high-turnover strategies get their edge partly from the short side, from betting against the expensive stocks as well as for the cheap ones. Put that strategy in an IRA and the short side is gone. What remains is a long-only tilt, and the tilt keeps only the part of the edge that came from overweighting, not underweighting. The rough rule from the research is half.
So the honest question before moving an active idea into the IRA is: how much of it survives without shorts? For a slow, broad tilt, most of it. For a fast idea built on pairs, sometimes little. The IRA shelters whatever is left; it cannot restore what the constraint removed.
Why the third limit matters for harvesting
A harvesting program in the taxable account and an automatic index-fund purchase in the 401(k) are a wash-sale pair waiting to happen, and no provider sees across the two. The fix is dull: check what the retirement accounts buy on payday before harvesting the same thing next door.
What an IRA does well
Everything else. Turnover is free, dividends are free, rebalancing is free, and the exit tax is the same on every dollar. For the long-only, high-turnover exposure a household chooses to hold, it remains the right home.