[retiredguy123]

Originally Posted by Topspinmo

Why wouldn’t lost be tax deductible? There going collect taxes on withdrawals?

Actually, they are. For example, if your total pretax deposits total $100K, and your account drops in value to $80K by the time you retire, you would only owe tax on the $80K that you withdraw.

[Boomer]

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

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.

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.

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

[retiredguy123]

Originally Posted by Boomer

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

I am not 100 percent certain, but, if we are talking about a traditional IRA, where all of the contributions were made with pretax money, I don't think the cost basis has any significance or benefit at all. The IRA cost basis is zero, regardless of what you invested it in. The RMD comes out, it is all taxed as ordinary income, and you must start over by buying new stock or other investments with a new cost basis. There is no in-kind transfer allowed because you never had a cost basis.

If you have a Roth, or you have a traditional IRA that was fully or partially funded with after tax money, it can get complicated.

[Boomer]

It's been fun talkin' witcha about this, rg123. This thread has made me "curiouser and curiouser" -- like Alice said in Wonderland.

I think maybe we have been talking about apples and oranges mostly, but that's OK, it sent me on a search -- which I should have done in the first place -- but that's OK, too. Where's the fun in that. Can't let the internet do all our thinking for us. (Btw, the link I am providing is to a legitimate source. I vet the internet.)

I like learning about this stuff, and I always let it be known that I was not in the money business.

I just found an article that lays it all out. It clearly says that an in-kind transfer resets the basis. I am pleasantly surprised. I might be seeing possibilities in a reset basis -- only after talking to a tax professional, of course. And I would never have even thought about it had it not been for these TOTV screen-side chats.

Read on.

Here it is:

How to Take In-Kind Distributions from Your Tradition... - Ticker Tape

Boomer

[retiredguy123]

Originally Posted by Boomer

It's been fun talkin' witcha about this, rg123. This thread has made me "curiouser and curiouser" -- like Alice said in Wonderland.

I think maybe we have been talking about apples and oranges mostly, but that's OK, it sent me on a search -- which I should have done in the first place -- but that's OK, too. Where's the fun in that. Can't let the internet do all our thinking for us. (Btw, the link I am providing is to a legitimate source. I vet the internet.)

I like learning about this stuff, and I always let it be known that I was not in the money business.

I just found an article that lays it all out. It clearly says that an in-kind transfer resets the basis. I am pleasantly surprised. I might be seeing possibilities in a reset basis -- only after talking to a tax professional, of course. And I would never have even thought about it had it not been for these TOTV screen-side chats.

Read on.

Here it is:

How to Take In-Kind Distributions from Your Tradition... - Ticker Tape

Boomer

I think the key point in your link this:

“You still have to pay taxes when you use an in-kind IRA distribution,” said Luber. “The IRS wants the money. That’s the point of RMDs in the first place.”

I'll need to think about it, but why not just repurchase the same stock and start a new basis?

[Stu from NYC]

This is why I am happy to pay for the services of our CPA.

[Boomer]

Originally Posted by retiredguy123

I think the key point in your link this:

“You still have to pay taxes when you use an in-kind IRA distribution,” said Luber. “The IRS wants the money. That’s the point of RMDs in the first place.”

I'll need to think about it, but why not just repurchase the same stock and start a new basis?

I have more to think about, too. I might not be seeing what I think I am seeing. But now I think I’ll go watch Bosch with Mr. B. Bosch is back. Before we watched it, I thought it was about a dishwasher — a very quiet dishwasher.

Boomer

[Boomer]

Originally Posted by Stu from NYC

This is why I am happy to pay for the services of our CPA.

Now, Stu, please do not lecture me. I have said repeatedly around here that I never do anything taxing (chuckle) without our CPA.

“I know a little bit about a lot of things, but not a whole lot about anything,” said Boomer, in a self-effacing manner. (I really do say that in my real life. )

Boomer

[Stu from NYC]

Originally Posted by Boomer

Now, Stu, please do not lecture me. I have said repeatedly around here that I never do anything taxing (chuckle) without our CPA.

“I know a little bit about a lot of things, but not a whole lot about anything,” said Boomer, in a self-effacing manner. (I really do say that in my real life. )

Boomer

I am pretty well versed in financial matters but taxes make my head spin and give me a headache. It is sad that our govt wrote a tax code that the vast majority has no clue how to navigate.

[petsetc]

Having read this thread and the link about in-kind transfers, I am at a loss to see the difference between doing and in-kind transfer out of an RMD, which is fully taxable at market value or selling and immediately repurchasing in a taxable account except for a possible price change during the few days involved. The only possible other reason, which seems not to be addressed is that ownership date may or may not reset in an in-kind transaction.

[TNGary]

Originally Posted by petsetc

I am at a loss to see the difference between doing and in-kind transfer out of an RMD, which is fully taxable at market value or selling and immediately repurchasing in a taxable account except for a possible price change during the few days involved. The only possible other reason, which seems not to be addressed is that ownership date may or may not reset in an in-kind transaction.

Yes your correct I believe, regarding price change difference, which could be significant as we have seen with all of the market fluxuations, such as you sold at $140 a share and have to repurchase @ $145 a share, not to mention taxes you must pay.

Also thank the poster for the link regarding in kind transfer. A lot of great talent on these posts!!

[Boomer]

Originally Posted by TNGary

Yes your correct I believe, regarding price change difference, which could be significant as we have seen with all of the market fluxuations, such as you sold at $140 a share and have to repurchase @ $145 a share, not to mention taxes you must pay.

Also thank the poster for the link regarding in kind transfer. A lot of great talent on these posts!!

You’re welcome. I don’t know why I didn’t look for a valid source sooner, but sometimes it’s good to work things through.

I have not been in the position to have to sell stock to pay taxes, but this in-kind transfer thing is really good to know about in case we decide to put ourselves in that position.

The other thing to watch for with the RMD is IRMAA (Income Related Monthly Adjusted Amount). Medicare premiums for B and D are based on a sliding scale, based on AGI, and IRMAA can sneak up on you if you don’t know it’s there.

A good year in the market resulting in a big RMD can throw you into bigger Medicare premiums that show up two years later. The QCD can help if the taxpayer is charitably inclined. It would be really frustrating to cross over the line by just a little and get hit with a bigger premium. (Surprise!) IRMAA is something to be aware of and can take some tax-planning.

And please don’t get me started on conversion to Roth after the RMD is paid.

We knew we would have to pay the piper someday, but it really can feel like “trying to break your money out of its prison,” like my accountant said. There can be so many moving parts to the plan and it has to go just right.

Boomer

[retiredguy123]

Originally Posted by Boomer

You’re welcome. I don’t know why I didn’t look for a valid source sooner, but sometimes it’s good to work things through.

I have not been in the position to have to sell stock to pay taxes, but this in-kind transfer thing is really good to know about in case we decide to put ourselves in that position.

The other thing to watch for with the RMD is IRMAA (Income Related Monthly Adjusted Amount). Medicare premiums for B and D are based on a sliding scale, based on AGI, and IRMAA can sneak up on you if you don’t know it’s there.

A good year in the market resulting in a big RMD can throw you into bigger Medicare premiums that show up two years later. The QCD can help if the taxpayer is charitably inclined. It would be really frustrating to cross over the line by just a little and get hit with a bigger premium. (Surprise!) IRMAA is something to be aware of and can take some tax-planning.

And please don’t get me started on conversion to Roth after the RMD is paid.

We knew we would have to pay the piper someday, but it really can feel like “trying to break your money out of its prison,” like my accountant said. There can be so many moving parts to the plan and it has to go just right.

Boomer

So, you can do an in-kind transfer from your IRA to a taxable account to satisfy your RMD requirement. But, you still pay the same taxes and you get no tax or income deferral benefit. Unless you are very old, your RMD is typically a very small percentage of your total IRA balance, most likely less than 10 percent, and you have a year to decide when and how to take the RMD. It can even be taken in small amounts during the year. I can't understand doing the in-kind transfer unless your IRA is invested totally in a few individual stocks with little or no diversification, and you are in love with those particular stocks. I would rebalance the IRA assets and create some diversification with other stocks, bonds, and cash, so that I could better manage the RMD and time it to benefit me. My opinion.

[Babubhat]

New IRS interpretation will screw your heirs. Annual distribution for them is required. They likely will pay more tax if working than the benefit you received.

The new IRS 10-year RMD rule isn't what we thought it was

Confusion about 2022 required minimum distributions - InvestmentNews

Early planning on qualified charitable distributions can mean bigger tax savings - InvestmentNews

[retiredguy123]

Originally Posted by Babubhat

New IRS interpretation will screw your heirs. Annual distribution for them is required. They likely will pay more tax if working than the benefit you received.

The new IRS 10-year RMD rule isn't what we thought it was

Confusion about 2022 required minimum distributions - InvestmentNews

Early planning on qualified charitable distributions can mean bigger tax savings - InvestmentNews

Inherited IRA rules are a pain in the neck. For some people, the best thing to do is to systematically convert your traditional IRA to a Roth and save your heirs a lot of hassle. Do the math and watch out for IRMA.