In-Kind Distributions
I understand that there is a benefit to making in-kind distributions from an IRA (if you pay taxes upon distribution, then further appreciation will be taxed at capital gains rate), but are there any other benefits? For example, will you pay lower taxes, or can you defer taxes (I believe the answer to these questions is ‘NO’).
Thanks very much
Permalink Submitted by Al Fry on Tue, 2008-11-11 23:39
Correct. Savings of transaction fees?
Permalink Submitted by Alan Spross on Wed, 2008-11-12 00:16
If you take an in kind distribution, the tax basis on the distributed assets is not affected by whether the distribution is taxable or not, or comes from a TIRA or a Roth IRA. The tax basis is the value upon distribution.
From there, any gains within a year would be taxed at sale at full ordinary rates. Long term gains are taxed according to the marginal tax bracket, which is -0- within the 15% and lower brackets until 2011, and 15% in the higher brackets. The 15% rate is almost certain to rise as soon as we get out of this financial mess, probably to at least 20 and possibly higher. Most states do not have cap gain rate advantages, so at the state level, the marginal bracket would be tacked on to the federal rate.
The issue of in kind distributions as surfaced recently with the RMD requirement proposals. An RMD does not require anyone to sell stocks at depressed prices, all it requires is the distribution from the IRA. Those that need the money to live on will have to sell the stocks in any event, and even that presumes a IRA that is 100% stock based. 100% stock holdings at RMD age is far more aggressive than any financial professional would recommend.