04 Oct What happens to cost basis when you transfer stock from an IRA?
Q. When you move stock from an IRA account to a regular stock account, not selling the stock but transferring it as an Required Minimum Distribution (RMD), does the cost basis change?
A. With the big market downturn, lots of people are concerned about selling stock right now.
Some are considering moving the stock to a taxable account as part of a Required Minimum Distribution (RMS) instead of selling.
When you have an in-kind transfer, your cost basis is reset, said Kenneth Bagner, a certified public accountant with Sobel and Co. in Livingston.
He said if, for example, you had a stock you bought in your IRA for $10,000 and now it is worth $25,000, when you withdraw from your IRA, you will have tax on the full $25,000, assuming you had a traditional tax-deferred IRA.
The basis is reset at the fair market value of the stock on transfer, which is $25,000, Bagner said.
If you sell the stock for $30,000, you will have a $5,000 capital gain, he said.
“The one area you need to be careful of is that the transfer resets your holding period,” Bagner said. “Therefore, in order to have a long-term capital gain, you need to hold the stock for a year.”
Long-term capital gains provide preferential tax rate treatment compared to short-term capital gains, which are taxed at ordinary tax rates based on your marginal tax bracket.
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This story was originally published on Oct. 4, 2022.
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