May I pay the tax due on my in-kind RMD from an external source, i.e. not from my IRA?

Submitted by Virginia Primack on Fri, 2018-11-02 16:08

I would like to take my RMD in-kind next year. If there is not sufficient cash to pay the taxes, may I use funds from a non-IRA account?

Thanks a million!

Permalink Submitted by Alan - IRA critic on Fri, 2018-11-02 17:58

Yes, you would usually pay the taxes with quarterly estimates from non IRA funds. If you want to use IRA funds, you would probably just use withholding from the IRA distribution, as that is easier than taking a separate IRA distribution without withholding and then using the money to increase your quarterly estimates. You could also use withholding from a non IRA source as well because withholding is applied to your tax bill in the same manner regardless of which account it comes from.
With an in kind IRA distribution (RMD or otherwise), with most brokers you will probably have to sell enough shares to create cash in your settlement fund to cover the withholding. I don’t know if there are some brokers who will allow you to tell them what to sell to cover the withholding amount so you can order the distribution in a single step.
Withholding is generally preferable for quarterly estimates because there is no timing requirement for the distribution. If you take your RMD late in the year and use withholding that can often avoid quarterly estimates entirely, and you get the benefit of keeping the tax money yourself for most of the year. If you do not reject withholding or change the %, the default for IRA distributions is 10%. Many brokers will accept a change up to 99% of the distribution. All depends on the amount of the distribution vs. the amount of your total tax bill for all taxable income.