Ask the Expert: How do you take an RMD using stock?
I have a question about required minimum distributions from retirement accounts. Must I sell a security in my retirement account and withdraw my RMD in cash? Can I instead satisfy the RMD by transferring the stock or mutual fund shares from my retirement account into my brokerage account?
You can. That’s called an in-kind transfer. If you don't need your RMD to live on, and you think these shares will gain in value, this is a strategy worth considering.
Here's how to do it.
First determine your RMD amount by dividing your total IRA balance on Dec. 31 of the previous year by your life expectancy factor, which is listed in IRS Publication 590. If you're 74 years old and your 2021 year-end balance was $780,000, for example, your 2022 RMD is $30,588 ($780,000 divided by 25.5).
Then tell your IRA custodian to transfer shares worth $30,588 from your IRA to your taxable brokerage account. It’s important to double-check after the transfer that it satisfied your RMD because the share prices will be valued at their closing price on the day of the transfer. If the amount falls short, you'll have to make an additional transfer of securities or cash.
Assuming all your IRA contributions were tax-deductible, you'll owe ordinary income taxes on the entire $30,588.
But going forward, your cost basis on these shares will be their market value when they were transferred. If you later sell them for $35,000, for example, your taxable profit is $4,412 ($35,000 minus $30,588.) If you sell the shares within a year, you’ll pay ordinary income taxes on any profit. If you sell them more than a year later, it's taxed as a long-term capital gain.
The bottom line
You can take your RMD in stock or mutual fund shares.
