Required Minimum Withdrawal Strategy

value since they were purchased. If we transfer the investments over to a taxable account when making the RMD, will we have to pay the taxes on the increase of the value from when they were bought? Or will the cost basis be when they were transferred over from the IRA to the taxable account?

withdrawn from the IRA for the RMD, so that we won't have to pay taxes on the accrued gains. Is there a required length of time they have to be sold before we make the RMD, or can they be sold immediately before?

I trust the IRA has no post-tax deposits. If so, the stock you transfer out as an RMD takes on a basis the day it's transferred. And the full amount is considered income.

If you like the stocks, there's no need to sell as long as you have the funds to pay the tax.

On a side note - once the RMD transfer is made, you might consider a partial Roth conversion. The goal would be to "top off" your current bracket each year. For example, a married filing joint couple is in the

15% bracket up to $70,700 taxable income. If you happen to have a taxable income of $60,000, by converting $10000 or so, you take that as income, pay the 15%, but reduce the RMDs increasing each year. If you overshoot, or find you are in the sweat spot where social security is getting taxed, you can recharacterize and simply undo the conversion. This process is not much effort once it's understood.

wrote in message news: snipped-for-privacy@googlegroups.com... Many of our IRA investments are longterm and have increased a great deal in value since they were purchased. If we transfer the investments over to a taxable account when making the RMD, will we have to pay the taxes on the increase of the value from when they were bought? Or will the cost basis be when they were transferred over from the IRA to the taxable account? If the former, it would make sense to sell the investments before they are withdrawn from the IRA for the RMD, so that we won't have to pay taxes on the accrued gains. Is there a required length of time they have to be sold before we make the RMD, or can they be sold immediately before? We are a few years away from 70 1/2 but I want to start planning for this ahead of time. ============= You are required to withdraw in CASH.

Ignore the fact that your IRA holds shares of stock. It could hold cash instead. The tax is not capital gains rates but ordinary income rates.

If you had ever contributed to your IRA and not deducted that contribution, you have "basis" in your IRA and should have filed form 8606 each year you make a nondeductible contribution. When you take a distribution, in cash or stock (valued at the time of distribution), use form 8606 to figure the amount of the distribution that is taxable and the new "basis."

If you never made nontaxable contributons, the entire distribution is taxable as ordinary income.

I think you have confused Contributions to an IRA (must be cash) with Distributions, which can be In-Kind and valued at time of distribution.

On Tuesday, July 3, 2012 3:26:33 PM UTC-6, joetaxpayer wrote...snip...

Can you start this strategy prior to age 70 1/2? Say it turns out that I could "top off" my bracket when I'm 67 and 69, but not any other years. Can I withdraw different amounts (the amount needed to "top off") from my IRA at ages

67 and 69 and not take any distribution any other years until the RMD requirement kicks in?..Thanks, Ron

could "top off" my bracket when I'm 67 and 69, but not any other years. Can I withdraw different amounts (the amount needed to "top off") from my IRA at ages

67 and 69 and not take any distribution any other years until the RMD requirement kicks in?..Thanks, Ron

Absolutely. In fact, the Roth conversion can start anytime. For most, the first years of retirement are the ideal time to start the process as income has dropped, social security may not have started yet, and the "top off" concept can be used to the most benefit. As you note, you can convert in any year of your choosing.

Absolutely not. You can withdraw any asset in your IRA without reducing it to cash. There are rules for valuing a distributed asset. In the case of a stock, it's usually the average of the high and low share price on the distribution date.

Tax on the distribution is calculated on the full value of the distribution (assuming there have been no after-tax contributions to the IRA). The only difference between selling before withdrawing and withdrawing the stock in shares is the cost of the sale commission.

Ira Smilovitz

I think you have confused Contributions to an IRA (must be cash) with Distributions, which can be In-Kind and valued at time of distribution.

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I have been taking my RMD in kind for the last couple of years. The withdrawal is taxed based on the closing price of the stock on the day of the withdrawal. You could get the same effect by selling the stock in the IRA and purchasing it in your margin account. However the price could fluctuate and you would pay two commissions if you sold it then repurchased in a different account. In the past, I took the RMD in cash and paid it on my mortgage, but now my mortgage interest is so low, I can make more on dividends.

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I think you have confused Contributions to an IRA (must be cash) with Distributions, which can be In-Kind and valued at time of distribution. =============== Rollover and loss-of-exemption distributions may be in-kind. Other distributions are supposed to be in cash (especially 408(d)(4) or (5)) because they follow IRC 72 rules (cf. 408(d)(1)) for annuities (which by definition means regular periodic CASH payments). TR 1.72-2(b)(2) and (3) makes it clear that annuities are paid in cash (which may be a foreign currency), not in-kind.

Regardless, there's no basis in the property distributed. Proof: Wash sale rule - A loss sale inside an IRA and repurchase by the individual outside of the IRA does not result in an increase of basis per the CCM mentioned on here earlier this year (January, where a loss outside and repurchase inside did result in a wash sale but no basis adjustment). Although I disagreed with the logic of that ruling, you all can't have it both ways.

You are correct in that IRC 408 by itself does not mandate cash distributions. Six types of distributions are specifically allowed to be in-kind. RMDs are not among them.

I've done in-kind RMDs. The Schwab form for IRA distributions specifically spells out "transfer specific shares listed to my non-retirement Schwab account #....."

Just to play devil's advocate here - since a day or two after the transaction, I see the amount distributed shows as a dollar value on which tax is due, and the tax is then paid on the value of the stock distributed, what penalty, if any would there be for this non-allowed transaction?

D - I looked at Pub 590, and agree, that while it explicitly states (new) deposits must be in cash, it's silent on distributions. For the account holder, it's a savings of 2 commissions and a bid/ask spread, nothing more and nothing out of Uncle Sam's pocket.

No account is needed to see the forms Schwab uses:

uses:

It is not obvious that the Schwab form is intended for an RMD. The "Normal Distribution" check box is the only one that is at all relevant (it is to be used in cases when the owner is 59.5 years of age or more, and of course, usually an owner taking an RMD is 70.5 or more and thus meets this requirement). But the form seemingly goes on to say that a Normal Distribution is one that can be rolled over into another IRA, and of course, RMDs cannot be rolled over into another IRA. Is there another form for RMDs?

Dilip Sarwate

the link to the exact form I am referencing. It specifically states RMD, and offers the in-kind option.

B. Transfer my distribution assets (listed in Section 6) to my non-retirement Schwab One account number: _________________________.

The other form "Schwab IRA Required Minimum Distribution Request Form" also lets you transfer stock.

There will probably be no penalty because the the 1099-R form only reports the dollar value withdrawn. The IRS won't know that you withdrew stock directly. But when you sell stock later and they audit you, they may find out that the manner in which you acquired the stock was through an IRA distribution (which makes the value on 1099-R the cost basis). I'm not sure that there are penalties because none of the statutes spell this out. There may be an injunction on Schwab to get rid off this option -- ie to get rid off box B and D.

When we had the "take a loss and buy back in your IRA discussion," clearly there was an attempt to take advantage of a loophole of sorts. On that, I think no one disagrees.

I've not done the RMD yet this year, but when I do, I'll look to see that the cost basis reported by Schwab reflect the reported value withdrawn. In that case, my basis has a legit paper trail. I understand the rules need not pass a common sense test. Let's say for a second that I have a large amount of stock distributed this way, and face audit. I show that I paid tax upon distributing those shares and claimed the value taxed as new basis. On what grounds would the IRS suggest I have a lower basis than what I already paid tax on? I've seen some pretty convoluted deals that don't pass the smell test. In this case, as I've suggested, there is no loophole, just a clean way to not sell/transfer/buy. The IRS collects 100% what they expect. I have no reason to think this process isn't kosher, and am actually surprised to find it's being questioned.