Why Transfer In Kind?

[yakers]

I have seen postings that some can transfer stocks and other financial assets from their IRA to an investment account. Obviously the tax on the IRA withdrawal will be due and I expect that the new account will start with a current valuation, no way to carry over the original aquisition value. So it seems like all this does is hold an asset one may like and maybe keep an AA but is it different than just taking out cash from the IRA and buying whatever fits the AA or is needed for expenses? Is there any particular value to transfering in kind?

 

[single2019]

I have seen postings that some can transfer stocks and other financial assets from their IRA to an investment account. Obviously the tax on the IRA withdrawal will be due and I expect that the new account will start with a current valuation, no way to carry over the original aquisition value. So it seems like all this does is hold an asset one may like and maybe keep an AA but is it different than just taking out cash from the IRA and buying whatever fits the AA or is needed for expenses? Is there any particular value to transfering in kind?

To stay in the market all the time. Once it’s transferred, you can change the investment to your liking again without exiting the market

 

[donheff]

To stay in the market all the time. Once it’s transferred, you can change the investment to your liking again without exiting the market

That's the issue I could see motivating someone. Nothing more frustrating than to sell equities to transfer and the having a big rebound while the proceeds are sitting in cash. You can offset the risk to a bit simply by exchanging funds in the same or another tax deferred account to cover the withdrawal (e.g. exchange bonds for equities to balance the sale amount).

 

[audreyh1]

If someone wanted to keep the asset for future appreciation/recovery it’s a nice clean way to do it that doesn’t require selling and rebuying and any tricky associated timing.

I’ve been reading about folks bemoaning the need to sell the stocks in their IRA to satisfy their RMD requirement and hoping they would go up by the end of the year before they had to sell. Well they probably don’t have to sell, and there may be advantages to withdrawing stocks in kind while they are down. For example if your stocks are down you will transfer more shares to satisfy the RMD and then they can appreciate in your taxable accounts when the recovery eventually occurs rather than making the IRA grow more in the future.

It needs to be part of a total strategy looking at your retirement assets across both IRAs and taxable, and deciding how your asset allocation should be managed across both assuming you maintain a target AA. And planning ahead for future RMDs as well as Roth conversions before reaching RMD age is also important.

 

[copyright1997reloaded]

I can sell and buy a position in under 10 seconds.

I see no value in "in kind" transfers from a tIRA to a taxable account.

There *is* value in in-kind transfers where the transfer process takes time (e.g. from Vanguard to Schwab or whatever). In this situation there is significant market flux risk.

There is value in in-kind between taxable accounts where you are gifting. For example, I transferred some Apple to my child. Yes, it might be better to wait until I die so that there is a step up in basis, but second to that is to try to garner "tax gain harvesting" in an account where the tax rate is zero.

 

[single2019]

I can sell and buy a position in under 10 seconds.

I see no value in "in kind" transfers from a tIRA to a taxable account.

Let’s take an example. I want to transfer 100 shares of VOO from tIRA to a taxable account (same brokerage). If I were to first sell my position in the tIRA, I would have to wait for it to be settled before I can move the cash to the taxable account for repurchase. You can’t do this in under 10 seconds. That’s the value of “in-kind” transfer.

 

[CRLLS]

Question, when you transfer in kind from an IRA to a taxable account, does the purchase date move with the shares? IOW, does the clock reset for short term/long term gains?

 

[single2019]

Question, when you transfer in kind from an IRA to a taxable account, does the purchase date move with the shares? IOW, does the clock reset for short term/long term gains?

Clock starts at transfer. There’s no clock in the IRA to reset (no cost basis for either gains or losses)

 

[CRLLS]

Duh! I should have put brain into motion before my fingers were moving. Thanks!

 

[single2019]

Duh! I should have put brain into motion before my fingers were moving. Thanks!

Yeah, that happens when we watch the markets going downhill

 

[Graybeard]

Let’s take an example. I want to transfer 100 shares of VOO from tIRA to a taxable account (same brokerage). If I were to first sell my position in the tIRA, I would have to wait for it to be settled before I can move the cash to the taxable account for repurchase. You can’t do this in under 10 seconds. That’s the value of “in-kind” transfer.

That is interesting, I thought in-kind transfers were just used when moving funds from a brokerage's taxable account to a different brokerage to avoid selling and incurring taxes. When doing the RMD, I thought you just had to wait for the distribution to settle then buy whatever in your taxable account.

 

[audreyh1]

Let’s take an example. I want to transfer 100 shares of VOO from tIRA to a taxable account (same brokerage). If I were to first sell my position in the tIRA, I would have to wait for it to be settled before I can move the cash to the taxable account for repurchase. You can’t do this in under 10 seconds. That’s the value of “in-kind” transfer.

To overcome this delay you would need to have the cash available in the taxable account to buy the asset at the same time you sold it for cash in your IRA. If you have the cash sitting around you can do it. If you don’t let extra cash sit around in your taxable accounts you really can’t and have to wait for the IRA sale to settle and the IRA withdrawal to complete. Like you said - not 10 seconds.

I guess you could go on margin for a few days…..

 

[single2019]

That is interesting, I thought in-kind transfers were just used when moving funds from a brokerage's taxable account to a different brokerage to avoid selling and incurring taxes. When doing the RMD, I thought you just had to wait for the distribution to settle then buy whatever in your taxable account.

In-kind transfers are also used for efficient Roth conversation

 

[SecondCor521]

That is interesting, I thought in-kind transfers were just used when moving funds from a brokerage's taxable account to a different brokerage to avoid selling and incurring taxes. When doing the RMD, I thought you just had to wait for the distribution to settle then buy whatever in your taxable account.

Not if you take the RMD in-kind, which you can choose to do if you want to.

In-kind transfers are also used for efficient Roth conversation

We should talk about this more. It would certainly add to the discussion.

 

[copyright1997reloaded]

To overcome this delay you would need to have the cash available in the taxable account to buy the asset at the same time you sold it for cash in your IRA. If you have the cash sitting around you can do it. If you don’t let extra cash sit around in your taxable accounts you really can’t and have to wait for the IRA sale to settle and the IRA withdrawal to complete. Like you said - not 10 seconds.

I guess you could go on margin for a few days…..

Hm, now I understand your use case.

In my case, my normal (taxable) accounts are all margin accounts (even though I am normally not on margin). I do that for flexibility, and this is a case of that. I do not believe I have not been charged margin interest when doing this in the same account, e.g. tax gain harvesting where I sell a security to take the gain and repurchase it immediately.

What I am not sure of (and perhaps will call Schwab, Ameritrade, Fidelity) is whether they hold tIRA stock sales for a T+2 settlement when the funds are being transferred to another taxable account held by the same owner. I thought I had seen the $ from a sale be immediately available for transfer. But perhaps I am incorrect on this - I can verify with them or perhaps run a test myself.

Regardless, I get your point - if you want to keep the holding then just do an in-kind transfer. But everyone should be aware that the cost basis gets reset to the date of transfer (I would guess the closing price but someone should verify that) and the ST/LT clock gets restarted (i.e. it becomes short term) in this scenario (in-kind transfer from tIRA to regular account).

 

[ERD50]

Originally Posted by single2019 View Post
In-kind transfers are also used for efficient Roth conversation

We should talk about this more. It would certainly add to the discussion.

+1

I did my Roth conversion last week. I noticed this option on the standard pull down menus (Etrade). Not sure if I used that or noticed it last year, but I think what happened is before I made the transfer last year, I thought it had to be cash, so I sold, waited three days, and then did it. Then I needed to buy in the Roth.

So an in-kind transfer really is much more straightforward. No waiting on either end, and with my seemingly poorer-by-the-year short term memory, it's one and done - no need to have to remember to come back and finish the job.

In the future, I'll always do as in-kind (I better put a note in my 'pro-forma tax document, so I don't forget!). Even if I want to change my AA or investments, better to do that as a separate transaction to keep the conversion itself trouble-free.

-ERD50

 

[Graybeard]

The use of in-kind RMD is interesting and sounds like a simpler way to sell ABC and then ABC with what is left after taxes. However, I suspect I will be taking my RMD from my Settlement Fund and buying the Total Stock Market Index in my taxable account so that would not qualify for an in-kind transaction.

 

[SecondAttempt]

While I don't disagree with anything that has been said. In-kind transfers exist for historic reasons. It used to take days or weeks to transfer to another brokerage, and if physical certificates were involved it could potentially take months to send the certificates by railroad or pony express.

Yes, I understand we no longer live in that world. But the idea that moving from one broker to another is different from selling and rebuying is still relevant. I don't think in-kind can be used between accounts with different owners. Your retirement accouns and IRAs have different owners for tax purposes.

 

[single2019]

I don't think in-kind can be used between accounts with different owners. Your retirement accouns and IRAs have different owners for tax purposes.

Fidelity allows in-kind transfer from my IRA to my brokerage account. This transfer needs to be done on phone by a customer service representative. The shares will be assigned a new cost basis.

Fidelity allows in-kind transfer from my IRA to my Roth IRA account. This transfer can be done online. I confirmed by doing the actual transfer.

While all of the above can be done by selling and repurchasing, the advantage of in-kind is the ability to stay in the market at all times.

Note: all accounts at Fidelity and all in the same name.

On a side note: I sent a secure message to Fidelity with this question and got a call back within an hour

 

[MarieIG]

Did a few small in kind Roth conversions for the first time this year.

I didn't really enjoy doing them, because basically I converted (portions of) the worst performing funds which I loathed for their poor performance. It also forced me to set a loss goal, be patient and wait for it.

 

[SecondAttempt]

Fidelity allows in-kind transfer from my IRA to my brokerage account. This transfer needs to be done on phone by a customer service representative. The shares will be assigned a new cost basis.

Interesting but makes sense. I assume the tax treatment is as if you sold in your IRA, made a withdrawal, then rebought in your brokerage, In that case you would pay ordinary income taxes on the full transfer. Is that correct?

 

[SecondCor521]

Interesting but makes sense. I assume the tax treatment is as if you sold in your IRA, made a withdrawal, then rebought in your brokerage, In that case you would pay ordinary income taxes on the full transfer. Is that correct?

Correct, in the context of a traditional IRA with zero basis. Cost basis of in-kind asset is FMV on date of transfer, and I assume but have not personally confirmed that acquisition date would be date of transfer.