Cost Basis Of In-Kind Stock Distributions From Inherited IRA

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  • #4645
    Ryan1
    Participant

    I have an inherited IRA.

    The assets from the original IRA were transferred to my inherited IRA “in-kind.”

    The assets consisted of a single stock and a small amount of cash.

    So I now have the shares of that stock in my inherited IRA.

    I intend to take my distributions from this IRA by distributing enough shares *in-kind* to myself to meet the RMD each year.

    I will then own shares registered to me outside of my IRA that originally came from the original IRA.

    My question is what is the basis of the shares I distribute to myself from my inherited IRA?

    Is it the original basis in the original IRA? A stepped up basis to the date the shares were distributed to my inherited IRA from the original IRA? Or a stepped up basis to the date I distributed them from the inherited IRA to myself?

    #4646
    kaneohe
    Participant

    More typically, RMDs are taken in cash and are fully taxable (assuming that this a traditional IRA, not a Roth). For in-kind distributions, you are typically taxed on the full value of that distribution so it is like you took a cash distribution and did a buy transaction w/o paying any fees. In this case your cost basis in your taxable account would be the value when distributed.

    https://www.irahelp.com/forum-post/17663-cost-basis-stocks-transferred-out-ira

    There is not really a cost basis for stocks in the IRA since the distributions are typically fully taxable. Brokerage firms sometimes use that term but it is only to show if the stock had a gain or loss since you bought it and it has no meaning tax-wise since taxes are not based on the gain but on the total value of the distribution typically.

    The only real basis in any IRA is if you had a non-deductible contribution
    which would not be taxed when distributed.

    #4648
    Ryan1
    Participant

    Thank you kaneohe. That was what I suspected but needed confirmation.

    Unfortunately I am in the same boat as the author of the post in your link. The stock currently in my inherited IRA probably lost 80% or more of its value since originally purchased, but I will not be able to take the losses when distributed.

    Such is investing!

    Thanks again for the excellent answer.

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