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IRA account RMD strategy

May be a very simple question. If you have stocks in a traditional IRA account. You have sell or transfer stocks out of the account the the annual RMD. Would you save the good performing stocks in the IRA account and sell or transfer the not as well performing stocks for the RMD?

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@sc10 If you do not the cash, you may take the RMD Distribution (or a greater amount/value) as an in-kind distribution (stock) transferred to your taxable brokerage account. If the stock appreciates, you then will have a strategy to receive long term capital gains when such stock is sold in the future. Depending on your income tax rate at the time of sale, your long term capital gain tax rate may be 0%, 15% or 20%. I would transfer the stocks that have not performed well or even lost value. Should they turnaround and appreciate, they can be sold at that time. Capital gains tax rate are less than income tax rates. Another point is that if the stocks do not appreciate, you can sell at a loss and receive a deduction on your annual income tax return. Losses in excess of $3,000 may be carried forward to subsequent years.

Honored Social Butterfly

@Tonster521 

Guess that would be a strategy IF he needs some tax (rate) sheltering or a loss to reduce taxes.  

Different strokes for different folks cause each should know their best move for themselves.

I like to see my IRA grow and grow and then just keep my distributions at the minimum RMD.  I try not to keep looser stocks or funds or under-achievers, I just switch them to better ones - the winners - all within the IRA so no keeping track of capital gains, dividends or losses - just want to see the IRA keep growing.

But like I said - guess it does go by ones personal objectives and needs - tax-wise  included.  There is always the QCD rule for IRA distributions that can help tax-wise too and it makes one feel really good.

 

 

It's Always Something . . . . Roseanna Roseannadanna
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@GailL1 I did not type a key word, "need", in my first sentence. The phrase should read, "If you do not need the cash". I guess my mind is faster than I can type. Anyway, folks that attain their RMD age must take a distribution to avoid the 50% excise tax. If their IRA does not have the required amount of cash, they may sell assets to raise cash or take an in-kind distribution (i.e., stock, bonds, mutual funds, etc.). The IRS taxes us based on the value of the distribution, not the amount of cash. Some folks manage their asset allocations and taxes carefully. For example, selling a security at a loss in an IRA cannot be excluded from one's Federal Income Tax return. So, transferring that security to a taxable brokerage account will provide an opportunity for either a tax advantaged capital gain or a tax deduction depending on the value when such security is sold. It can also be used to offset other taxable gains or losses which is called tax harvesting. You need to meet the time requirements for long term versus short term. If there are no other taxable transactions during that calendar year, you can deduct up to $3,000 from your income and carry any additional amounts to subsequent years. Obviously, you want that security(s) to appreciate and depending on your income tax bracket (i.e., less than 22%) the long term capital gains rate is 0%. Also, if such security pays qualified dividends, the tax rate for those qualified dividends are also 0% as long as your income tax bracket is less than 22%. As a comparison, all distributions from an IRA are ordinary income and taxed at your Federal tax bracket rate. If your IRA distributions are a greater value, this is a strategy to save tax dollars which is almost like earning money. Hope this helps.

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Honored Social Butterfly

Depends on the control you exert over the account - got to pay really good attention so as to not slip up. 

 

Why wait?  It would be easier just to switch the under-performing stocks to a good-performance stock within the IRA.  If mutual funds instead of individual stocks, if you use the same family of funds, the cost should be minimal, if any.  Then your RMD or whatever the amount you elect if larger than RMD can just be done as scheduled and everything is coded correctly as to your distribution from the IRA.

 

Your way can be done but it is gonna take a lot of check/double checking that everything has gone according to plan in dollar value and has been coded correctly as a distribution.  Brokerage firms go according to what you have indicated on your IRA Distribution form - especially if you have more than one IRA account in various places.  Your IRA RMD is a calculation based on ALL of your IRA holdings.  

 

Gonna require lots more action in the way you described but yes, it could be done with you controlling and verifying more of the process

1.  know the amount of your RMD that has to be covered for the year

2.  advise your broker that you want to sell the whatever stock(s) to satisfy your RMD for the year- all or part.

3.  Then check the amount of the distribution, that it was coded as a distribution - at least the minimum - if not, you get a big tax penalty.  

4.  If you want to close out all of that particular stock - you have to know if there is gonna be any dividends or capital gains earned, when posted if you want them covered in the transaction.

 

I think this would be a pain to do - but who am I - it is you.

 

 

 

It's Always Something . . . . Roseanna Roseannadanna
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