Tax Q? about selling stock to spouse

[I am He]

I have closely held stock with a modest basis and would like to sell it to my spouse at my basis so she could put it into her IRA.

Anyone ever done/heard of reg's such as this?

 

[pb4uski]

No can do.

Unfortunately, if you have shares of stock in a traditional brokerage account that's not a retirement account, you usually can't just transfer them to an IRA. Transfers to IRAs generally have to be in the form of cash.

In this case, you'll have to sell the shares, transfer the funds to the IRA and, if you wish, buy equivalent shares in the IRA. You may owe tax based on gains from the stock sale, and you'll need to make sure the amount transferred falls under the annual IRA contribution limits.

https://finance.zacks.com/transfer-stock-ira-7763.html

Regular IRA contributions must be made in cash or checks. Contributions of securities are not allowed. Internal Revenue Code Section § 219(e)(1) and IRS Publication 590-A provide detailed information about IRA contribution rules. Exceptions apply to rollover contributions if the same security was distributed.

You cannot fund an IRA with stocks; only cash or checks must be used.

https://www.investopedia.com/ask/answers/06/stocksforira.asp

 

[CaliKid]

Is that something that could be done with a self directed IRA? I know you can buy real estate through those. I would contact one of those companies to ask them about the options.

 

[pb4uski]

Yes, you can buy real estate, but you need to contribute cash to fund the IRA and then buy the real estate.... what the OP proposes would be to contribute highly appreciated real estate that he already owns to the IRA.

 

[kaneohe]

Can OP put cash in the IRA, then purchase the stock privately for the IRA?

 

[bingybear]

Can OP put cash in the IRA, then purchase the stock privately for the IRA?

yes, but his wife's IRA can not have it while he works for the company. This would likely invalidate the IRA.

The custodian for the IRA should not allow this tax fraud (deliberately miss pricing assets).

 

[pb4uski]

yes, but his wife's IRA can not have it while he works for the company. This would likely invalidate the IRA. ...

Where are you getting this?

 

[bingybear]

Where are you getting this?

link

Rules for Closely Held Stock

A closely held business is one that has a limited number of shareholders. These companies are often private and do not transact in the stock market. You can invest in a closely held company in your IRA as long as you and your immediate family do not either work in the business, have other ownership interests in it outside of the IRA, or manage the business. In other words, you have to remain personally hands-off with your IRA investments.

Prohibited Transactions

There are several investments that you are not allowed to make in your IRA. The general rule to remember is that you and your close family cannot benefit from assets held in the IRA before you retire. You cannot, for example, invest in a rental property in your IRA and personally do the maintenance and collect rent. You also cannot participate in businesses whose shares or loans are held by the IRA. You cannot borrow money from the plan or pledge the assets against a loan. The IRS does allow some exemptions to the rules, but they must be applied for prior to initiating the transaction.

The Consequences of Breaking IRA Rules

If the IRS determines that you have violated any of the rules regarding prohibited transactions, it can nullify the tax benefits of the IRA. The IRS will treat your entire IRA as if you withdrew all of its contents. If you are under 59 1/2 years old, you will pay an early withdrawal penalty of 10 percent. This penalty is assessed on the entire withdrawal in the case of a traditional IRA and on the income portion only of a Roth IRA. You will also pay tax on the entire withdrawal in a traditional IRA and on the income built up in a Roth IRA.

 

[Sunset]

I have closely held stock with a modest basis and would like to sell it to my spouse at my basis so she could put it into her IRA.

Anyone ever done/heard of reg's such as this?

I'm trying to figure out why put it in an IRA ?

If this special stock skyrockets, it's far better to have them in a regular brokerage (best would be roth ira, but does not seem possible).
If it goes bankrupt, again regular brokerage wins, as can claim a loss.

Doesn't seem to me any advantage for a regular IRA

 

[pb4uski]

link

I agree but we don't know if the OP is an owner or an employee (in which case it would be prohibited), or just a friend or acquaintance (in which case it would be permitted).

 

[pb4uski]

I'm trying to figure out why put it in an IRA ?

If this special stock skyrockets, it's far better to have them in a regular brokerage (best would be roth ira, but does not seem possible).
If it goes bankrupt, again regular brokerage wins, as can claim a loss.

Doesn't seem to me any advantage for a regular IRA

Agree... Roth would be ideal.