Ask the Expert: How are in-kind RMD transfers valued?
When you take a required minimum distribution (RMD) by transferring stock "in kind" from your retirement account into your taxable account at the same brokerage, how is the stock valued? Is it the price at the close of the day you request the distribution? The price on the day the transfer is executed? Another price? Do all brokerages follow the same valuation rule?
There's no Internal Revenue Service-mandated valuation rule for "in kind" transfers. Indeed, a firm may use more than one method. The only way to know how your brokerage does it is to ask them.
For readers unfamiliar with "in kind" transfers, here's a simple example: You own stock worth $20 a share in your individual retirement account. Your RMD is $2,000. Instead of selling 100 shares and taking your RMD in cash, you transfer 100 shares from your IRA into your taxable account. You'll pay ordinary income tax on their $2,000 value; but any future appreciation is taxable at capital gains rates.
So what determines that $2,000 value? That may depend on how you complete the transfer form. For example, are you asking to transfer 100 shares, or all your shares, or $2,000 worth of shares? Do you want taxes withheld from the distribution? At Vanguard, those details determine which of two valuation procedures is used, says James Martielli, Vanguard’s head of investments and trading services: either the shares' closing price on the prior business day, or their closing price on the business day on which you request the transfer.
Share prices fluctuate. If you transfer 100 shares instead of shares worth $2,000, double check after the transfer that their value satisfied your RMD. If there’s a shortfall, you can transfer additional shares or cash to make it up.
The bottom line
There’s more than one reasonable way to value an "in kind" transfer.
