RMD met with transfer in-kind
Let’s say my RMD for 2021 is 10,000, for which I transfer from my TIRA to my brokerage account 500 shares of XYZ stock that has a value of 10,500. I now have the shares in my brokerage account. If I understand it correctly, the basis of these shares will be the fair value on the date of transfer. But what about the holding period? will the holding period transfer with the shares or does it reset to zero on the date of transfer? I would guess the latter, but thought I’d check here first.
Question 2: what determines the price that is used on the day of transfer? For a mutual fund, it’ll likely be the closing price But for traded securities, is it the days closing price? An average of the opening and closing price? Other?
BruceM
Permalink Submitted by Alan - IRA critic on Sat, 2022-04-09 02:11
Bruce, the holding period for shares transferred out of a retirement plan starts anew at the distribution date from the plan, so your presumption is correct.
If more than one security is transferred out of a plan, determining the breakdown for each security will be a challenge. If your IRA brokerage statement does not provide this detail, you may have to request a breakdown of the distribution values of all non cash securities. This breakdown can then be provided to the taxable account broker for that broker to capture the cost basis for required basis reporting. The total cost basis should also match up with the 1099R Box 1 less distributions in cash.
Permalink Submitted by BruceM on Sat, 2022-04-09 15:22
Yes, I can see that getting the brokerage/IRA custodian to provide the per-share info would be the best approach. But I’m curious….is there an IRS prescribed way of valuing the in-kind transfer or is it up to the IRA custodian. I looked thru the IRS pubs on security valuation and couldn’t find anything.
Permalink Submitted by Alan - IRA critic on Sat, 2022-04-09 18:01
Usually, the IRS will allow the custodian to use any reasonable method for this and similar transactions, since custodians use different processing platforms with differing capabilities. Ever more securities change value constantly while the market is open, while mutual funds only post their NAVs a couple hours after the market closes. Therefore, the brokerage would seemingly have a choice of either doing the transfer of a mutual fund during open hours using the prior close, or waiting until after hours and using the NAV calculated after the most recent market close. I suspect the latter is the usual model. For other securities, a broker may have adopted the practice of processing transfers in off hours using the most recent price, or perhaps some can transfer in real time using the current price. One difference between a transfer and a sale is that for a transfer the trading spread is not a factor affecting the new basis in the taxable account. A taxpayer who requests many such transfers may wish to inquire how the broker handles valuation and when they process transfers, particularly if the values are high.