IRA same client

[erchess]

I caught the same client trying to take a distribution from his wife's IRA in the form of stock rather than money. He can't do that, right? He called the broker and was told to try it online and see what happens. The guy on the phone essentially said he did not know and was too busy to find out but that if it was possible the client should be able to figure out how online. (I hate his broker but that is another matter for another time.)

[erchess]

Latest Info

On the broker's website we found that it is a routine matter to withdraw securities from your IRA and put them in your regular taxable account or have the certificates mailed to you. His wife is transferring the shares to their JTWROS Taxable account and apparently this is going to satisfy the RMD. I learn something every day.

[OtisMozzetti]

Distribution of Property

So, she the wife took a distribution in the form of property, not in the form of cash. The distribution of stock property gets valued at the FMV of the stock on that trading day. She put that distributed property into a joint account with her husband. Another issue is that of who, wife or husband, is actually pushing the keys and the mouse on the transactions.

[ChEAr$]

And just wait

So, she the wife took a distribution in the form of property, not in the form of cash. The distribution of stock property gets valued at the FMV of the stock on that trading day. She put that distributed property into a joint account with her husband. Another issue is that of who, wife or husband, is actually pushing the keys and the mouse on the transactions.

till one of them tells you that "they" transferred it into their JOINT IRA! (grin

[erchess]

These Clients are my parents

Dad makes all the financial planning type decisions. Mom has a PHD in English from Univ of NC but she can't balance a checkbook even with a calculator and the form on the back of a bank statement. Dad also did the pressing of the computer keys but all he did with the computer was print a blank form, fill it out by hand, and get her to sign it. She had full understanding of the fact that she was taking a distribution of stock instead of cash as the RMD from her IRA and putting it in their joint taxable stock account. She does not understand why she has to take money out of her IRA each year and that starts with not fully realizing that she put only non taxed dollars into it but even when I get the latter to stay in her mind for a few minutes she does not understand the government's interest in minimizing the amount that is still in it when she dies. Anyway Dad went to the Credit Union and got them to fax in the form for him.

Now given that there will soon be shares of this stock moved from IRA to taxable account, what will be their basis in these shares? I am thinking FMV today just as if the shares had been bought today but I would appreciate confirmation. That figure is less than the amount the IRA paid for the shares.

Forgive me if I am asking questions I could look up in TTB. I ordered only the CD so of course I don't have it yet.

[joanmcq]

It makes sense that the tax basis is the amount they paid tax on; in other words, the amount they were worth on the day of distribution. I really don't understand the jumping through hoops of this transaction....isn't it really the same as taking out a distribution in cash and then purchasing the shares in a taxable account?

[erchess]

Premise

If your premise is right, and I think it is, then your conclusion is right. When Dad gets around to selling the shares he will take the basis that I give him. However in his mind he ought to be able to keep the basis Mom had when they were in the IRA. They had basis there - it was right on the computer screen and he can't see beyond that. He is explicitly hoping I will tell him he can use that basis but since he is also hoping I will keep him out of trouble he will go with whatever basis I tell him is correct. The one time a return I prepared for him and mother has been questioned we started with a CP2000 and got as far as an NOD before I found an agent who understood what I was trying to say and told me how to prove my point. The return was unchanged but it was a nervous several months around here because the IRS was asking for about a third of one year's income.

Oh wait I just thought of one more thing - I believe that by doing as he did Dad avoided paying a $9.95 commission on the purchase of replacement stock. And to him that would have justified several hours worth of work.

[joanmcq]

You may try to explain that 'basis' and 'tax basis' can be two different things. Tax basis is not necessarily what you paid for it; its how much was paid with taxable dollars. I know YOU know this but trying to explain it to a non tax person can be difficult!