FAQ: How to do an IRA distribution as a transfer of stock

splasher

This FAQ:

https://community.quicken.com/discussion/7072150

Does a great job of explaining how to handle a distribution that is "cash", but how do you do it if it is strictly a transfer of stock.

The brokerage is transferring the stock from the IRA to a taxable account without taking any taxes out (I'll cover them by getting a smaller return next year). I understand that the transferred stock in the taxable account will get a new basis of the current market price.

So it seems that rather than using the "Shared transferred between accounts" transaction, I will need to do just remove shares in the IRA and add shares in the taxable account with an appropriate total cost.

What bothers me about this scenario is that the acquisition dates of all the shares will be the same versus the many different transactions that a transfer of shares would yield.

Is this the correct way to do this or is there a better way?

J_Mike

The method I have used is to Sell the shares in the IRA.


Transfer the cash and then repurchase the shares.


The 'repurchase' establishes the new acquisition date and cost basis in the taxable account.


Also, my objective was to get QWin to recognize and report the taxable distribution.


QWin will recognize a cash distribution - it will not recognize a distribution taken in shares as a tax related event.

q_lurker

I agree.  I think the sell and cash transfer is more appropriate than the Remove Shares  / Add Shares.

Unknown

I've been thinking about this also, and have to concur that the sell/buy combination is the way to go.  It will record any CapGns in the IRA (for investment tracking purposes), and establish the cost basis in the regular account.

mshiggins

So the acquisition date changes when you transfer shares from an IRA to a taxable account?

q_lurker

"So the acquisition date changes when you transfer shares from an IRA to a taxable account?"

My basic (non-professional) answer would be yes.  In the real real world, I think this is usually a rare case.  The IRA administrator may say they are transferring shares, but I believe they really are selling from the IRA and buying in the taxable account.  That is, I believe the proper Quicken treatment.  Thus a new basis and acquisition date get set.  I can't imagine the IRS would let you pull out the old shares, pay the tax on withdrawal (if applicable), then immediately sell the shares as LT holdings.  But then as I have often said - I ain't no tax pro.  Do your own due diligence.

Unknown

The method I have used is to Sell the shares in the IRA.


Transfer the cash and then repurchase the shares.


The 'repurchase' establishes the new acquisition date and cost basis in the taxable account.


Also, my objective was to get QWin to recognize and report the taxable distribution.


QWin will recognize a cash distribution - it will not recognize a distribution taken in shares as a tax related event.

"So the acquisition date changes when you transfer shares from an IRA to a taxable account?"

Yes.  Ed Slott, the IRA guru, answers this question directly:
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If an IRA owner takes a distribution from his account in stock, he or she will pay ordinary income tax on the value of the stock on the date of the distribution. There are no capital gains recognized inside an IRA.

    Let's say you buy $2,000 worth of a certain stock inside your IRA. The stock remains in the IRA and grows in value to $20,000. You now want to withdraw the stock, but you do not want to sell it.  So you transfer it to a regular taxable brokerage account with the same broker. It's really just a book entry from your IRA account to your regular (non-IRA) taxable brokerage account, but it is treated as an IRA withdrawal for Internal Revenue Service tax purposes.

    When the stock is distributed from the IRA, there will be a tax on $20,000 of IRA distributions. It does not matter that you did not actually sell the stock, but merely transferred it to your taxable brokerage account. It's still a taxable distribution. Assuming that there are no non-deductible IRA contributions, the entire $20,000 will be taxed at ordinary income tax rates.

    The new basis for figuring gain or loss on any subsequent sale is now $20,000. The holding period for long-term capital gain begins on the day after the IRA distribution, not on the day the stock was originally purchased within the IRA. You cannot tack on the period the stock was held inside the IRA. To qualify as a long-term capital gain, the stock must be held for more than one year from the day after the date of the IRA distribution.
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