Cost basis for Stock transferred from IRA to personal account....

dcs1037

I purchased shares for $32000 in my IRA account about 3 years ago. They are worth $26,000. If I were to transfer these shares to my personal account, I will have to pay income tax on $26000. Can I sell the shares from my personal account, and take a loss of $6000 against my long term capital gains? What would be the basis and holding period of the shares that I have transferred? Can you please point me to any IRS publication on this topic?

Thanks.

veegee

@dcs1037 , I'm not a tax expert, and please do not consider this financial advice. But the way I would have done this would be:

1. Sell the shares in the IRA account (there is a loss here, but that should have no tax consequences IMO)
2. Transfer how much money you want from IRA to the personal account (whether it came from the sales of these shares or prior existing cash balance).
3. Note: Doing 2 above will results in a taxable distribution from IRA - you should get a 1099 (or some other) tax form at the end of the year. You will have to pay tax on the amount. While doing this, you can also ask your IRA holding institution to withhold taxes. I would normally set this to my current tax bracket but one can choose any percentage).
4. Buy back the shares, if you wish, in your personal account.

There are probably other ways to do this that have better tax effects, but I like to keep things simple and straightforward. Irrespective of how you do it, the IRS may treat it as equivalent to the above anyway.

Does your broker allow such a transfer of shares between IRA and personal?

Jon

I don't know of an IRS document. Publication 590-B discusses IRA distributions in general but doesn't seem to have anything specific to say about in-kind distributions.

Here's a Charles Schwab page talking about in-kind IRA distributions and how they reset the basis (meaning you can't write off a loss that occurred while the asset was inside the IRA):

https://www.schwab.com/learn/story/taking-kind-distributions-from-your-ira

jacobs

@dcs1037 No, you can't do what you suggested. When you move shares or money from an IRA account to a non-retirement account — it doesn't matter if you transfer the shares of a security, or sell the shares and move the resulting cash — that value is immediately taxable income: in your case $26,000 in taxable income. The gains or losses of those investments while they were in your IRA account are irrelevant; there really isn't a cost basis and capital gain/loss on the holdings in your IRA account. When you purchase securities in your non-retirement brokerage account, the purchase price on that day becomes your basis for those funds going forward. So if you were to turn around and sell them, you would not have a capital loss.

Also, you didn't mention your age, but if you are under age 59.5, there is a penalty for IRA withdrawals; if you're over that age, then you can withdraw as much as you want from your IRA, and that amount will be taxable. (Unless you made non-deductible IRA contributions in the past — but most people don't do that, and since you didn't mention it, I'll assume that's not part of the equation.)

dcs1037

Thanks Jon. This was exactly what I was looking for.

dcs1037

One more thing. Similarly, if I were to transfer my personal stock holdings to a trust, what would be the cost and duration basis for the trust?

Jon

Unless there's something special about moving those assets from an IRA to a trust that avoids taxes, it's probably the same. You're still making an IRA withdrawal so you're going to be taxed on the value of the withdrawal & that's what resets the basis.