Any Cost Basis Change for Spousal IRA Inheritance

Submitted by Deena Wagner on Wed, 2017-06-14 20:46

Both husband and wife are past the 70 1/2 age and have been taking RMDs. Younger wife inherits the husbands TIRA and funds are moved to her TIRA (after the husband’s RMD for year-of-death have been withdraw and the appropriate taxes paid).

When husband’s stock holdings have been transferred to her account, the broker did not bring the original cost forward. So, for example, a stock that had been up 230% is now showing only a 15% increase, representing only the upside since the transfer of funds.

Original cost Is available & can be input manually showing a truer picture of ROI on these investments.

Since this is a spousal, husband to wife, TIRA to TIRA, both beyond 70 1/2, would there be any new cost basis involved for husband’s stock?

Other than now calculating the RMD based on the total amount of the combined account, and using the table for the younger (wife’s) account are there any other tax issues or changes?



Submitted by Alan - IRA critic on Wed, 2017-06-14 21:06

  • The cost basis of individual holdings in an IRA is a non factor, and all taxes are based on ordinary income rates and not cap gain rates. However, there is a basis in a traditional IRA if the individual makes and reports non deductible contributions to the IRA. The amount of basis is reported on Form 8606 when the non deductible contribution is made and also for each distribution taken thereafter. So, if husband passes with 30,000 of unrecovered basis in his IRA, his wife inherits that basis. Once the inherited account is rolled over to her IRA, she reports the inherited basis on her own 8606. If she had basis in an IRA that she has owned all along, the 30,000 of inherited basis is added to her basis on line 2 of Form 8606.
  • The cost of IRA holdings can still be tracked so the IRA owner can determine the gain or loss on the investment. Many IRA custodians provide this tracking, but is has NO tax significance at all. It is only useful to determine the rate of return on that investment for the time held.
  • In accord with the above, it is very possible that there is no actual basis in the IRA. If all contributions were deducted there is no IRA basis and no 8606.

Submitted by Ben Meyer on Wed, 2017-06-14 23:35

If the IRA owner were to take an RMD in kind, transferring a number of shares from the IRA to a personal non-IRA brokerage account, what would be the basis of the shares in the personal account?  The number of shares distributed as the RMD would be determined by the fair market value on the date of distribution.  Would this value also be the basis in the hands of the holder of the non-IRA acount?

Submitted by Alan - IRA critic on Thu, 2017-06-15 00:48

Yes, the basis of shares actually distributed would be their FMV on the date of distribution. The holding period would also start anew on the distribution date.  Distributee would need a breakdown if multiple issues were distributed, and the total basis value should match the 1099R amount. This basis is not affected in any way by the price per share paid by the IRA owner when purchased in the IRA.

Submitted by Deena Wagner on Thu, 2017-06-15 14:48

Thank you for your speedy and concise reply.  All is as I expectesd – nothing changes.  So I can now go and put in the original investment price so I can track the actual ROI.  Neither of us ever made non-deductible contribrutions to these accounrts.  You guys are great.

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