Non Cash Sepp Withdraw

L1: Non Cash Sepp WithdrawCan a non cash SEPP withdraw be taken in lieu of cash? As an example if I had 100 shares of AT&T as part of my SEPP IRA and each share had a market value of $50.00 could I take out the shares and count it as $5000 towards the annual withdraw. The reason I ask is capital loss can not be used in a SEPP IRA, but if shares are sold outside of the SEPP then loss would be allowed.ThanksJoe2007-01-27 15:11, By: Joe, IP: [67.169.13.239]
L2: Non Cash Sepp WithdrawHello Joe;
You are part right & part wrong. Yes, you can take a non-cash withdrawal from an IRA (whether it is part of a SEPP plan or not) and the value or calculation of the withdrawal is the fair maket value of the asset withdrawn on the date of withdrawal; e.g. in your example $5,000 for 100 shares of AT&T valued at $50 / share presuming that AT&T closed at $50 / share on that date.
Your personal basis in the100 shares you receive from the IRA is then $5,000 irrespective of what the IRA might have paid for those shares sometime in the past. Said another way, the gain or loss onshares purchased by an IRA does not transfer to you when shares are distributed from the IRA in leiu of cash. Thus, you do not get a ST or LT capital loss (or gain) when this occurs. Essentially it is treated”as if” those same 100 shares had been sold inside the IRA and $5,000 in cash was distributed to you.
As a result of the above, distributign assets “in kind” is a fairly infrequent event as it is typically not worth the trouble. Otherwise, everyone on the planet would be distributing their “lossers” from their IRAs to create capital losses.
Regards
TheBadger
wjstecker@wispertel.net

2007-01-28 08:16, By: TheBadger, IP: [72.42.67.9]

L2: Non Cash Sepp WithdrawThe Badger is correct, as always. To expand on his answer, the distributed shares will have an “acquisition date” as of the distribution, and the “cost basis” for future sales is the “fair market value” date of distribution. Make sure to get the valuation from the broker/mutual fund/administrator/trustee for your records, and make sure your “regular account” records are updated by your broker/mutual fund. They often are done wrong because they merely transfer the information from the original purchase in the IRA.
If you are concerned about taking a FUTURE LOSS because of a decline after the distribution, then why would you still own it, rather than selling it. On the other hand, if you expect it to appreciate in value, then you are better off with equity securities outside of the IRA (SEPP or traditional) because future appreciation will be taxed at 15% (or 5% if in the 15% or lower income tax bracket) compared to 25%-35% if growth occurs within the (SEPP or IRA).
As Badger said, losses within an IRA (SEPP or traditional) are not deductible, but you actually “save” more in taxes from losses WITHIN an IRA (SEPP or traditional) because they reduce the taxable income you will ultimately get because the total value of your IRA or SEPP has been reduced, and all distributions from these accounts are taxed at 25%-35%, except for those in the 15% tax bracket.2007-01-28 09:26, By: dlzallestaxes, IP: [4.175.9.76]

L2: Non Cash Sepp WithdrawOf course, the position that appreciating equities or those that kick out qualified dividends are better off outside a TIRA depends on future tax rate benefits for LTCG and qualified dividends extending indefinitely. That is problematic because politicians control tax legislation and right now they are just kicking the ball down the field 2 years at a time. These rates may not last, and once the assets are outside the IRA you cannot put them back in. Of course, you can change your asset allocation around inside vrs outside the IRA as long as you have enough assets in each place to match your investment allocations.
Regarding the in-kind distribution, as long as you understand the basis adjustment, and want to retain the stock in a taxable account, you do save two commissions by doing the transfer.
2007-01-28 17:57, By: Alan S., IP: [24.116.66.98]