Beneficiary IRA Tax question
I was the beneficiary of my brother’s IRA. I registered the IRA properly and took first distribution the following year in 2007. My question is: I invested the proceeds in a portfolio of stocks..If I realize a gain on these stocks, can these gains be offset by my previous long term stock loses that have been carried forward(from 2000 market crash) when I make my yearly distributions? I’m guessing no because IRA distributions are reported on line 15a of form 1040 and long term gains and loses are reported on schedule D? Any help would be greatly appreciated.
Permalink Submitted by Alan Spross on Sat, 2009-01-17 19:15
You would indeed report all IRA distributions on line 15 of Form 1040, and the taxable amount on line 15b. 15b will be less than 15a if your brother had a tax basis in the IRA from making non deductible contributions. If you have not checked that out yet, you should as it could save tax dollars. His tax preparer should be able to confirm, otherwise you would have to search his old tax records for Form 8606.
Whatever you do with that IRA distribution from that point on is unrelated to the IRA rules. If you buy stocks, any gains or losses are reported on Sch D and you can apply your loss carryover against the gains and up to 3,000 of ordinary income. If you have more losses your current loss carryover would just get larger.
If you distributed shares of stocks from the IRA instead of cash, then their tax basis is the value at the time of distribution. When you sell them in your taxable account, gains or losses are Sch D items handled as in the above paragraph.
Hope this answers your questions.
Permalink Submitted by gregg peckham on Sat, 2009-01-17 19:39
thanks for the response.. I don’t think I was clear in my initial post. I bought stocks within the beneficiary IRA. Even though I have a large long term loss carryover, any distribution from the IRA would be treated as income, and taxed fully? In other words, I couldn’t use my loss carryover to offset stock gains within the IRA when I take my yearly mandatory distribution.?
Permalink Submitted by Alan Spross on Sat, 2009-01-17 20:38
You can use up to 3,000 of your carryover loss against ordinary income of any kind, including the ordinary income from the inherited IRA RMD. The 3,000 loss goes on a different line on Form 1040. The IRA distribution goes on line 15 and the loss up to 3,000 goes from Sch D over to line 13.
In summary, the loss does not directly reduce line 15, but indirectly reduces the total of line 15 and other income such as interest, wages, social security etc.
Permalink Submitted by gregg peckham on Sat, 2009-01-17 21:50
Ok..I’m following you now. To take a step further then..I could take a distribution now by transferring recently bought stocks in my beneficiary IRA up to the point where it wouldn’t bump me into a higher marginal tax bracket. As you stated, the taxable amount would be determined on date of transfer. The reason being is that my substantial loss carryover would offset any capital gains when sold in a few years or so. I realize that taking the minimal distribution is usually the way to go because gains are tax free, but in my situation with the huge loss carryover, wouldn’t it make sense to try to offset? $3,000 a year for the rest of my life wouldn’t use up my losses. I should add that I’m trying to liquidate the IRA in the least time as possible without jumping into a higher tax bracket when doing so each year with my distributions.
Permalink Submitted by mk foss on Sun, 2009-01-18 01:13
If I understand you, your strategy will be to distribute securities from your inherited IRA to a taxable account. You will pay ordinary income tax in the year of distribution on the FMV of the shares received. Then when the stocks recover (sooner rather than later, I hope), you will sell them at a gain which will be absorbed by your carryover losses.
That will work. No distribution is required from your beneficiary IRA in 2009 but you may want to start this program anyway if you think some of the IRA investments are at an all time low.
Permalink Submitted by mk foss on Sun, 2009-01-18 01:14
If I understand you, your strategy will be to distribute securities from your inherited IRA to a taxable account. You will pay ordinary income tax in the year of distribution on the FMV of the shares received. Then when the stocks recover (sooner rather than later, I hope), you will sell them at a gain which will be absorbed by your carryover losses.
That will work. No distribution is required from your beneficiary IRA in 2009 but you may want to start this program anyway if you think some of the IRA investments are at an all time low.
Permalink Submitted by gregg peckham on Sun, 2009-01-18 01:33
yes, that is exactly my strategy. Hopefully, my recent stock purchases in the IRA will show a substantial gain in a year or 2…. I then sell and use my huge carry over loss to offset the gains.
Permalink Submitted by Al Fry on Sun, 2009-01-18 12:51
Seems like I’ve heard this before somewhere!
Permalink Submitted by gregg peckham on Sun, 2009-01-18 14:20
[quote=”[email protected]“]Seems like I’ve heard this before somewhere![/quote]
really? could you point me to the discussion