Are you at least 70 ½ years old with retirement funds?
If yes, then certainly you are aware that you must satisfy your required minimum distributions (RMD) from those retirement funds before December 31.
Your RMD does not have to be taken in cash.
What other options do you have?
According to a recent Kiplinger article titled “Retirees, Shift Stock to Satisfy Your RMD,” you can make an “in kind” transfer instead.
An “in kind” transfer involves moving mutual funds or stock into a taxable account from your IRA.
When would this be a good idea?
- You are not needing to spend your RMD.
- Your stocks are probably going to grow in value.
Why might a transfer be smart?
Your money stays invested.
You save money in transaction expenses.
How do you do this?
Find your account balance on December 31 of the previous year.
Next, divide this number by the IRS factor for your age.
Where can you find this?
The IRS Publication 590-B.
Have the money transferred.
Give the number you calculated to your IRA custodian and ask them to transfer the appropriate funds.
You and the IRS will receive a 1099-R from your IRA custodian detailing the amount and value of the shares on their transfer date.
Unless you made non-deductible contributions to the IRA, you will need to pay taxes on the entire amount transferred.
Be sure to double check with your IRA custodian, regarding the value of the assets transferred.
Sell the stock and use the payout from your IRA to repurchase the shares in a taxable account.
Market values can fluctuate.
If the amount transferred does not satisfy the RMD on the date of the transfer, you will need to make up the difference or pay a 50% penalty.
What happens with tax basis?
The tax basis will change based on the time of transfer.
What does this mean?
Shares worth $15,000 at the time of the transfer will be taxed on this amount rather than the value when they were in your IRA.
If this sounds like something you might want to pursue, do not delay.
This can be a long process, especially at the end of the year.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.
Reference: Kiplinger’s (December 2016) “Retirees, Shift Stock to Satisfy Your RMD”