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Originally Posted by Boomer
You are asking a question that I bet a lot of people are going to have at the end of the year. You have just thought of it sooner.
If the market is down in December, and if you do not have enough cash inside IRAs to protect stocks from having to be sold to pay the RMD, that would not be ideal, of course.
I would ask an accountant about whether an “in kind” transfer would be a way to pay the RMD based on the amount of the face value of the stocks transferring. (If you can do in-kind.) But later if you want to sell the in-kind shares, I have a feeling they come in dragging their cost basis with them, thus invoking a cap gain tax. Possibly a biggun. You should find out about that.
Dividend investors can let some of that income accumulate in cash inside the IRA and then use it for the RMD when the time comes, so they don’t have to sell stocks to pay taxes. That cash is like a moat around the stocks to protect them from having to be sold or transferred out to a taxable account.
(If you are charitably inclined anyway, look into using a QCD for part of the RMD. The advantage of the QCD is that it is not added into the AGI. But it would not help you keep your stocks. It would just save some income tax.)
Sounds like you are in “Be Prepared” mode. What you are talking about here (in May) will probably sneak up on some people in December.
Get professional advice and good luck with finding the most effective thing to do. (And maybe think about building that moat of cash inside an IRA. Even though the ROI on cash is absurd, your stocks would be protected.)
You probably already know that if you have more than one traditional IRA, the total RMD from all of them can be paid out of just one of the accounts. (Check me on that one, too. But, so far, I am not writing these posts from tax jail.) 
Boomer |
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Originally Posted by retiredguy123
All earnings from an IRA are taxed as ordinary income. So, it doesn't matter whether you have capital gains or not. Capital gains inside an IRA do not count as capital gains. I was just suggesting that, if you want to keep the same type of stocks, you can replicate them by buying the same stocks with the RMD money. But, any stocks you purchase outside of the IRA, will have a new tax basis, even if they are the same stocks you had inside the IRA. There is no tax benefit by buying "in kind" stocks with the RMD money. The RMD money will be immediately taxed as ordinary income regardless, and you cannot defer it.
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Quote:
Originally Posted by bob47
I've been using the concept of the protective "cash moat" but this year the moat is too small. Some decisions will have to be made. I appreciate the discussion.
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retired guy 123,
I already knew all that stuff about ordinary income tax on the distribution and about the joy of cap gains inside an IRA. That's what makes capturing a gain inside an IRA much sweeter.
But I must be looking at the OP's question in a different way than you are........
I took it from the angle of there being a long held, highly appreciated, dividend-belching behemoth inside the IRA -- a stock that has been a dependable source of income -- possibly for decades. Those who own stocks like this often hold them forever and would miss them if they were gone. Having to sell inside the IRA and rebuying after would not offer any consolation because the buyback probably would mean a lot fewer shares.
Is an in-kind transfer to a regular account possible? I do not know. All I know for sure is the distribution has to come out of the IRA and the cash for the ordinary income tax has to come from somewhere.
Back to what I said about cost basis -- if such an in-kind transfer is possible -- in that case, surely that in-kind transferred stock would come in lugging its cost basis. I cannot imagine the IRS allowing a do-over on that one. If the holder plans on probably never selling the stock, then it should never make any difference. (The tax law -- for a very long time -- has allowed a new cost basis on inherited stock, but that's the only do-over on cost basis, as far as I know. It's been in the crosshairs, off and on, but so far it's survived.)
If it is found that there is such a thing as an in-kind transfer, as long as there is outside cash on the side to pay the RMD, then the decision as to "when" becomes a factor. If the holder thinks the share price is going to take a big hit but wants to continue to hold -- probably due to having been through ups and downs before and still trusting the stock -- then to do the transfer at what "feels" like the high would mean relinquishing fewer shares to the taxable account.
OP, your question brought back memories of my favorite accountant. He is no longer with us, but I remember he would call this kind of thing, "trying to break your money out of its prison."
Boomer