Withdrawals from IRA

[THUNDER_75]

So I am planning to take some funds out of the IRA. I understand that I can transfer Stock, Bonds, ETF, Mutual funds from the IRA to my non IRA account. My question is - will that event set up me up in having to pay double taxes on those funds if they should increase in value from the time I move them to sell them?



(For example I would move $100,000 to the non IRA account. It has a basis in the IRA for a stock cost at $50,000. So it has grown by $50,000. I believe I would pay the appropriate taxes on the $100,000 in that year. If the amount were to grow an additional $25,000 to $125,000. Suppose I sell the stock for $125,000 the following year. Would I not get hit for a new tax event in the amount of $75,000 being ($125,000-$50,000)). It seams to me that I would pay double taxes on the 1st $100,000.



Or should I sell the stock in the IRA to cash for $100,000 and move it to the non IRA account as cash? Thanks for your comments.

 

[Hermit]

I think I asked the question last time I talked to a Vanguard broker and was told that all transfers out of an IRA were cash. You could then buy the same stock in the other account once the transfer was done. I'm sure it makes the tax accounting easier.

 

[braumeister]

Yes, your basis in the IRA is irrelevant, so you're taxed on the $100K you took out, at your ordinary income rate.
Then it's as if you just got lucky at the lotto and won $100K which you used to buy stock in your taxable account. Then you're taxed at your capital gain rate on the $25K increase.

 

[Gotadimple]

No you don't get double taxed.

You will pay taxes on the value of your withdrawal. If the administrator lets you transfer an asset from a Traditional IRA to your Brokerage account, you pay taxes on the value of the asset at the time of the transfer - as regular income. You cannot use capital gains rules on valuing assets coming out of a Traditional IRA, because you deposited cash to start the account and used cash to buy the asset. So you immediately increase your taxable income by $100,000, using your example.

Once the asset is in your Brokerage account it's beginning value is what it was when it was transferred to the Brokerage account. That value is the starting basis for the capital gains rules. Going forward, you can use capital gains rules to claim gains or losses when you sell.

- Rita

 

[mrfeh]

So I am planning to take some funds out of the IRA. I understand that I can transfer Stock, Bonds, ETF, Mutual funds from the IRA to my non IRA account. My question is - will that event set up me up in having to pay double taxes on those funds if they should increase in value from the time I move them to sell them?



(For example I would move $100,000 to the non IRA account. It has a basis in the IRA for a stock cost at $50,000. So it has grown by $50,000. I believe I would pay the appropriate taxes on the $100,000 in that year. If the amount were to grow an additional $25,000 to $125,000. Suppose I sell the stock for $125,000 the following year. Would I not get hit for a new tax event in the amount of $75,000 being ($125,000-$50,000)). It seams to me that I would pay double taxes on the 1st $100,000.



Or should I sell the stock in the IRA to cash for $100,000 and move it to the non IRA account as cash? Thanks for your comments.

As others have pointed out, you can't transfer securities from a traditional IRA to a brokerage account. You have to sell them, and pay income taxes on the gains.

What you do with the proceeds at that point is up to you.

 

[Dash man]

Why not transfer them to a Roth IRA as a conversion?

 

[cathy63]

... For example I would move $100,000 to the non IRA account. It has a basis in the IRA for a stock cost at $50,000. So it has grown by $50,000. I believe I would pay the appropriate taxes on the $100,000 in that year. If the amount were to grow an additional $25,000 to $125,000. Suppose I sell the stock for $125,000 the following year. Would I not get hit for a new tax event in the amount of $75,000 being ($125,000-$50,000)). It seams to me that I would pay double taxes on the 1st $100,000...

Let's define "basis" the way the IRS does, as the amount of after-tax money you put into the IRA. Is that $50K or $0 or some other amount in your situation?

If you actually have a $50K basis in your IRA, then that basis is over the entire account, not one specific stock; and when you withdraw money (or assets), it will be pro-rated. For example, if you've contributed $50K of after-tax money and $50K of pre-tax money and the entire account is now worth $250K due to growth, your basis in the account is still $50K. It doesn't matter which specific stock you bought with the after-tax $50K.

If your IRA custodian allows you to take an "in-kind" distribution from your IRA, and you withdraw $100K of the stock, then that's 40% of the account value, so 40% of the $50K basis, or $20K, is also withdrawn. You will be taxed on $80K of ordinary income in the year you make the withdrawal. If you later sell the stock for $125K, you'll be taxed on the $25K as a cap gain, either short or long depending on the date of the original withdrawal.

 

[cathy63]

As others have pointed out, you can't transfer securities from a traditional IRA to a brokerage account...

Depends on your IRA custodian. Some allow in-kind distributions, some don't.

 

[THUNDER_75]

So, essentially your basis get upped to $100,000 after the move so the clock starts all over again.

 

[THUNDER_75]

My tax advisor is not a fan of the Roth conversion.

 

[wallygator69]

My tax advisor is not a fan of the Roth conversion.

LOL!

 

[latexman]

My tax advisor is not a fan of the Roth conversion.

Is that for your specific case, or for anyone doing Roth conversions?

 

[NgineER]

My tax advisor is not a fan of the Roth conversion.

A Roth conversion would allow for tax free growth, but your conversion would not be accessible for 5 years without penalty.

 

[mrfeh]

So, essentially your basis get upped to $100,000 after the move so the clock starts all over again.

But you will pay income tax on the withdrawal from the traditional IRA.

There is no way to avoid this.

 

[splitwdw]

Depends on your IRA custodian. Some allow in-kind distributions, some don't.

+1
I'm still working but checked for my parents who have their IRA at Fidelity. They opened a Fidelity brokerage account and did an in-kind transfer of shares. It's been a while since I talked to Fidelity for them. My parents wanted to keep the stock shares so this saved them a selling and buying fee by transferring in-kind.

 

[pb4uski]

My tax advisor is not a fan of the Roth conversion.

Is there a particular reason for that or is s/he just a moron? Tax-free growth isn't good enouth?

 

[harllee]

If a person is over 70.5 there is a way to do tax free distributions from the person's traditional IRA using a Qualified Charitable Distribution. The check from the IRA must be made out to a charity. Such a distribution is not taxable to the IRA owner or the charity. Works great for a person over age 70.5 who wants to make gifts to a charity.

 

[Al18]

The Trump era tax cuts expire on 1/1/26. If nothing is done by our lawmakers, tax brackets will increase 3% ie the 12% tax bracket will go back to 15%. Sounds like a good time to convert to Roth IRA at least up to the 12% tax brackets. Run the numbers in your tax program if you don’t believe me.

 

[oldtimer]

If a person is over 70.5 there is a way to do tax free distributions from the person's traditional IRA using a Qualified Charitable Distribution. The check from the IRA must be made out to a charity. Such a distribution is not taxable to the IRA owner or the charity. Works great for a person over age 70.5 who wants to make gifts to a charity.

And in years that person is 72+ the QCD can counts as part of their RMD if QCD taken before completing their RMD.

 

[VanWinkle]

A Roth conversion would allow for tax free growth, but your conversion would not be accessible for 5 years without penalty.

Unless you had a roth account opened for 5 years and were over 59 1/2 then there is no penalty or 5 year wait.

From Mike Piper's website(Oblivious Investor):
"When amounts that were converted to a Roth IRA are distributed from the Roth IRA, they will not be subject to ordinary income tax. They might be subject to a 10% penalty. But that penalty will not apply if you’re at least age 59.5, or if the conversion was at least 5 years ago, if the conversion itself wasn’t taxable, or if one of several other exceptions applies. For more details, see “Roth IRA Distribution Rules” or the Roth IRA Distribution Tool."

 

[jebmke]

Is there a particular reason for that or is s/he just a moron? Tax-free growth isn't good enouth?

some are a bit confused about how to do the entries in tax software - especially if it is same year as a non-deductible contribution to Tira. Rather than admit they don't understand the process they are just "not a fan."

 

[Ncc1701]

As others have pointed out, you can't transfer securities from a traditional IRA to a brokerage account. You have to sell them, and pay income taxes on the gains.

What you do with the proceeds at that point is up to you.

Totally incorrect information on two levels. 1. You can easily transfer shares from an IRA to a regular brokerage account and 2. you pay taxes on the entire amount distributed not just the gains.

 

[ncbill]

But you will pay income tax on the withdrawal from the traditional IRA.

There is no way to avoid this.

Sure, but you can spread it out over several years.

As we're doing with old traditional tax-deferred accounts rolled over to IRAs...we try to convert only up to the top of the federal 12% bracket (MFJ)

We hope to be done with conversions before the current tax rates are set to expire.

Those funds, though currently modest in total (low six figures) will hopefully never be needed by either one of us and so be able to grow over the next 30-40 years for our heirs.

 

[mrfeh]

Totally incorrect information on two levels. 1. You can easily transfer shares from an IRA to a regular brokerage account and 2. you pay taxes on the entire amount distributed not just the gains.

It is effectively a sell and buy. The point I was trying to make is that taxes cannot be avoided.

 

[harllee]

It is effectively a sell and buy. The point I was trying to make is that taxes cannot be avoided.

Taxes on IRA distributions CAN be avoided--if you are at least age 70.5 you can have IRA distributions go to a charity (up to a max of $100,000 per year) under the Qualified Charitable Distribution rules. The IRA owner and the charity pay no tax on the distribution. Plus the charitable distribution amount reduces the RMD you would otherwise have to take. This is what my DH and I are doing, we may never have to take a RMD from our substantial IRAs.