In Kind Distribution
I have an ownership in an LLC that is part of self-directed IRA. I plan on taking a full distribution of that LLC asset and moving it out of my IRA and into my own name / ownership. I’m clear on that part of the process. What I don’t understand is the following …does the Managing Sponsor/Entity of the asset then simply change title of the asset from the IRA Custodian to my name? Do they keep using the same K1 or do they have to close that K1 down (e.g. issue a final K1) and then do a new K1? Any help on this would be appreciated as I’m not sure my Managing Sponsor is familiar with all of this.
Permalink Submitted by Alan - IRA critic on Thu, 2022-10-27 19:45
Your SD IRA custodian should notify the issuer of the asset of the distribution, just as an ordinary IRA custodian would notify the clearing firm for an in kind distribution of common stock from your IRA. The K1 forms will be different once you personally own the asset and will be issued to you personally. Formerly, the K 1 was issued to your SD IRA and most likely only affected your taxes if you had over 1000 of UBTI reported in Box 20 V, if I recall correctly. If so, your IRA would have had to file a 990 and pay the tax from your IRA. Therefore, you may get a final K 1 for the IRA, and will then be receiving another K 1 reporting various amounts after the distribution. Your cost basis of the asset after distribution is what it was worth when distributed from the IRA.
Permalink Submitted by B G on Sat, 2022-10-29 16:22
Thank for your response! Can you please clarify what you mean by ….”and most likely only affected your taxes if you had over 1000 of UBTI reported in Box 20 V, if I recall correctly. If so, your IRA would have had to file a 990 and pay the tax from your IRA. ” And in any event, I personally will be the tax on the in-kind distribution itself (the amount that will show up in the 1099 when the asset is distributed) – correct?
Permalink Submitted by Alan - IRA critic on Sat, 2022-10-29 16:53
Yes, for the distribution you will be taxed on the value upon distribution less any portion attributed to non deductible IRA contributions that you made in the past that would be tracked on Form 8606. If you have been getting a K 1 for the IRA due to UBTI (unrelated business taxable income) in a prior year, you may also receive one for this year for the time the investment was held in the IRA before you distribute it. These K 1 forms for IRAs are often related to holding a LP or MLP in the IRA.