Exchange IRA Assets for Cash

Submitted by Ed Farmer on Wed, 2014-01-22 15:30

Our 80 yr old client has equity positions in an IRA brokerage account which she never wants to sell even to satisfy RMD. she wants to use this one account to satisfy her RMD for the next few years while the assets in another IRA account reach maturity.

we know we can distribute shares of the equity positions to satisfy the RMD each year (probably along with some cash to finish off the RMD amount), but due to market fluctuations the equity value may be too low to satisfy the RMD (selling assets or not) one year.

does the IRS allow for the exchange of the equity positions held in the IRA brokerage account for cash (from a NQ acct)?

on the day of exchange she would move the equity positions to the NQ acct & replace/ exchange them for an equal amount of cash. at end of day she has the equity positions in a NQ acct never to be threatened by a forced sale AND the cash in the IRA account which would not fluctuate due to market volatility. the projected amount needed for the RMD’s over the next few years would be available.

the IRA Custodian is saying it cannot be done—even if we use the 60 day rollover rule. they say what goes out of the account must come back in. Equities out, SAME Equities back…cash could not be substituted.

do any of you have any ideas or experience with this? can you direct me to any IRS Regs which address this?

Thank You,
Ed



Submitted by Jose Morales on Wed, 2014-01-22 16:42

You cannot buy or sell to your own IRA.

Submitted by Alan - IRA critic on Wed, 2014-01-22 16:43

Ed, the following is copied from p 25 of Pub 590, and the custodian is correct:　

  • The same property must be rolled over.

If property is distributed to you from an IRA and you complete the roll-over by contributing property to an IRA, your rollover is tax free only if the property you contribute is the same property that was distributed to you.

  • I expect this problem is caused by the value of the other IRA account being much larger than the one holding the stocks such that the growing RMDs would exhaust the smaller account particularly if the stocks drop in value. The only solution to that concern would be to sell all the stocks in the IRA and re purchase those same stocks in the taxable account with the cash now in the taxable account. Her basis in those stocks would be what she paid at the time of repurchase. She would then be meeting her RMD with cash or other stable value investment. The cost of doing this should be limited to the sell and buy commissions. If the stocks gain, her beneficiary would get a step up in basis and her RMD would not escalate further due to gains. And if she has to sell the stocks at some point and there are gains, the LT cap gain rate is lower than having a larger RMD taxed at full rates had the stocks still been in the IRA.

 

Submitted by Ed Farmer on Wed, 2014-01-22 17:11

could she distribute out all of the cash & equities, but within 60 days roll back into the IRA some the cash only?  she would hold the equities as a distribution (zero cost basis) & have cash back in the IRA to cover the RMD’s.

Submitted by Alan - IRA critic on Wed, 2014-01-22 18:03

She could do that, but I don’t see how that would be of benefit. The first distribution of the year is deemed to apply to the RMD, and only the amount in excess of the RMD can be rolled back to the IRA. Only one such rollover can be done within a 12 month period. So essentially the RMD would be satisfied with stock and the amount of cash in the IRA might also be depleted. The same problem exists such that if the shares drop in a bear market, there may not be enough value left in this IRA to satisfy the entire RMD for both IRAs. Once the other IRA matures, I assume this will no longer be a problem. Meanwhile, if the stocks are in different sectors with not too much in a single holding, it would reduce the risks somewhat. Also, the shares distributed out of the IRA do not have 0 basis, their basis is the fair market value of the shares on the day of distribution from the IRA.

Add new comment

Log in or register to post comments