Ask the Expert: How to replace an 'in kind' RMD in 2020
I took my required minimum distribution (RMD) in January, in stock. I was told I had to return everything "in kind." The stock price had fallen, so when I returned it to my retirement account, I finished up with a deficit. What's the best way to handle this situation?
There's only one way. Resign yourself to the loss.
Here's a simple example to explain your situation to other readers.
An investor must withdraw a $2,000 RMD, and he has 500 shares of stock in his Individual Retirement Account worth $20 a share. A typical investor sells 100 shares of the stock, and takes $2,000 from the IRA. The $2,000 is added to his taxable income for the year. The unusual investor takes an "in kind" distribution: He withdraws 100 shares of stock and deposits them in a nonretirement account. Their $2,000 value is added to his taxable income for the year.
But this year, Congress has suspended RMDs. Anyone who took a 2020 RMD has until Aug. 31 to return the distribution to his or her retirement account and avoid being taxed on it.
People who took an "in kind" distribution must return it the same way. If you withdrew stock, you must return the same number of shares, regardless of their value. There's no recognition of loss or gain, says Ed Slott, a Rockville Centre tax accountant. In my example above, the investor took a $2,000 RMD by withdrawing 100 shares worth $20 each. If their price has since dropped to $15 a share, he returns 100 shares worth only $1,500.
The bottom line
A 2020 RMD taken in shares of stock must be returned in the same number of shares. There's no tax recognition of any loss you incur as a result of a change in their value.
More information
TO ASK THE EXPERT Send questions to act2@newsday.com. Include your name, address and phone numbers. Questions can be answered only in this column. Advice is offered as general guidance. Check with your own consultants for your specific needs.
