Inherited IRA Transfer to a Brokerage account

Submitted by William Laing on Wed, 2022-09-21 14:47

I have a question about an Inherited IRA Transfer to a Brokerage account.

With a down market, the value of some items, preferred stocks, ETFs, and bonds, are of lower value. My thinking is that the values will rebound, an assumption. Does it make sense to transfer some items from an Inherited IRA into a brokerage account? I am in year 2 of an inherited IRA and have extra tax room before moving to the next tax bracket. I could pay the tax on a lower amount this year but keep the same number of shares. I realize I would pay tax on the dividends or interest once the items are in the brokerage account. Of course, I could just let them alone and wait till I need the money, but I am getting closer to collecting Social Security, and my income will rise.

This scenario seems similar to a traditional IRA to a Roth IRA conversion.

Your thoughts are appreciated.
Thank you,
Bill



Submitted by Alan - IRA critic on Wed, 2022-09-21 16:38

If you own an IRA, I would first consider converting some of it to Roth if you think your current marginal rate is lower than what you expect in retirement, or in some cases not higher than what you expect. Of course, you cannot convert the inherited TIRA but if the conversion does not make sense you might take a larger distribution from your inherited IRA than your RMD. You may or may not have an annual inherited IRA RMD depending on whether the owner of that IRA passed prior to or after their RBD, and also pending issue of the final Secure Act Regs.

Submitted by William Laing on Sat, 2023-01-21 21:46

Thank you. First, I should consider converting my IRA, less the Inherited IRA RMD, to my Roth IRA rather than using more of the Inherited IRA. Then once I take the inherited IRA by transferring it to a brokerage, is there anything that says I cannot make my annual Roth IRA contribution from the brokerage account?  Again when I speak of transferring, I am sending shares between accounts. I appreciate your help. 

Submitted by William Laing on Sat, 2023-01-21 21:46

Thank you. First, I should consider converting my IRA, less the Inherited IRA RMD, to my Roth IRA rather than using more of the Inherited IRA. Then once I take the inherited IRA by transferring it to a brokerage, is there anything that says I cannot make my annual Roth IRA contribution from the brokerage account?  Again when I speak of transferring, I am sending shares between accounts. I appreciate your help. 

Submitted by Alan - IRA critic on Sun, 2023-01-22 02:27

  • You should attempt to fully use your lower rate brackets before your income rises due to SS and RMDs later on. This could be done with Roth conversions, but your inherited IRA RMDs will also fill some of the lower brackets. The amounts of each depend on the actual numbers, and how much higher your taxable income will be in the future.
  • It makes little difference whether your take your inherited IRA RMDs in cash or by in kind transfer of shares to your taxable brokerage account. An in kind transfer will avoid selling and repurchasing or being out of the market for a couple days. But due to low or 0 commissions offered now on trades, the cost of selling and repurchasing is minimal. If you transfer (either just your RMD or additional amounts) your cost basis in the taxable brokerage is the value of the shares when distributed from the inherited IRA. If you sell them in the IRS, distribute your RMD in cash, and then repurchase what you wish in the brokerage account, your basis will be what you paid for the new shares, so your cost basis will be about the same either way, and your holding period also starts anew after distribution from the inherited IRA.

Submitted by William Laing on Sun, 2023-01-22 15:49

This helps so much. Thank you, I am in the right direction. 

Submitted by William Laing on Sun, 2023-01-22 15:49

This helps so much. Thank you, I am in the right direction. 

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