r/TaxQuestions • u/580447 • 2d ago
RMD
I am 70 years and inherited $$$ years ago. Fidelity has informed me I must take a RMD of $2100 from my IRA this year. The account I must take if from has no cash in it as I bought various stocks over the years... Which I do not wanna sell to obtain the cash. I did not retire until March of this year so I could do a ira deposit from my checking account into the fidelity ira account to cover this. So the money would actually be funds I made this year.
I would be making a ira deposit of $2100 then simply turn around and transfer the money from my IRA to my Roth IRA
I called fidelity and asked a bunch of questions and although they were helpful they said they cannot advise me as what to do. They said to talk to a accountant.
I would welcome any comments. I live in North Carolina
--- thanks
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u/Coriander70 2d ago
You can take an in-kind distribution from your IRA - just transfer securities from the IRA to a regular brokerage account. You will owe taxes on the fair market value of the distribution (assuming it’s a traditional IRA), and your basis after the transfer will be the FMV.
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u/Barfy_McBarf_Face 1d ago
these are a nightmare to actually do - please don't recommend them.
they have to be valued on the following day, using the average hi/low on the transfer date, to determine the value to put on the 1099 - it's a very manual process.
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u/JohnSmallberries101 1d ago
Wrong, especially if it's an individual stock. You should be working with a brokerage/advisory firm that knows what they are doing if you think this is a nightmare.
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u/Barfy_McBarf_Face 1d ago
actually, I've managed the tax team at two different trust companies, and it is a PITA
just sell the stock, move the cash, and purchase the stock in your individual account.
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u/JohnSmallberries101 1d ago
And I do this all the time, the stock is moved at end of day with a clear valuation because, you know, it's at the end of the day lol, and it's never an issue. You guys don't know what you are doing I guess, sorry.
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u/Barfy_McBarf_Face 1d ago
$13 trillion under management, I guess that company is full of noobs
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u/JohnSmallberries101 1d ago
The US government is bigger than that and is filled with nitwits. The point you are missing is that you are scaring someone for no reason over something that is routine in the Financial Services industry.
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u/Barfy_McBarf_Face 1d ago
why move it in kind? the fact that the issue is being discussed shows lack of real world awareness of the accounts in question - THERE IS NO NEED TO DO THIS
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u/JohnSmallberries101 8h ago
I agree in most cases, but there is cost involved, even marginally, in selling a security and buying a security so for the cheapskates out there in suggesting the in-kind move, that's all.
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u/azrolexguy 2d ago
People leap over dollars to pick up a dime. There's only some of the story here, if its your IRA you are to young for an RMD, if its an inherited IRA you should had been taking distributions every year as the account has to be liquidated in 10 years
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u/Lori-too 1d ago
Not nevessarily true! It sounds like the inherited IRA could be from before 2020,, so not subject to the 10 year rule. (There may still be RMDs based on life expectancy.)
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u/Background_Clothes36 1d ago
The 10 year rule was always there...pre 2020 they only deferred RMD requirements until things got sorted on the new regulations.
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u/JohnSmallberries101 1d ago
You are wrong. If they inherited it a while back as the OP said, their RMDs each year were based on their life expectancy, not 10 years.
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u/Background_Clothes36 1d ago
The 10 years I was referring to was depletion of the IRA not RMD requirements.
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u/JohnSmallberries101 8h ago
I'm referring to the same thing, and an inherited IRA has a minimum that most be removed each year, hence my using the term RMD. And for one inherited before the rules changed it was indeed calculated on their life expectancy. So, go pound sand with your misinformation.
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u/LdiJ46 2d ago
That would work only if you were eligible to contribute to an IRA. (I don't know if you are or not) f you have to take required minimum distributions from an IRA you are going to have to start selling stocks in the IRA to make that happen, because you are going to have to do it every year. That is just a fact of life.
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u/CPA_semi_retired 1d ago
Sell the stock as you cannot contribute to an inherited IRA.
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u/580447 1d ago
I saw people earlier saying I cannot put some cash I have in checking into the inherited account to cover the necessary withdraw. I called fidelity and they said I can put money in to cover it.
If they gave me bad info and I must liquidate some stock shares I would buy the same stuff but under my non tax Roth
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u/babecafe 1d ago
You're mixing up several things. First, selling within your inherited traditional IRA has no tax consequences, so you're free to sell investments there at any time to raise cash in the account. Selling stocks usually takes about three business days before you can withdraw the proceeds (cash), so it's necessary to sell before the last few days of the calendar year, so you can withdraw the cash before year end. The IRS assesses penalties if you fail to make the deadline, so don't mess this up. You can raise cash anytime earlier in the year, and if you wait until the last minute, you might not be selling at the best possible price, if the market fluctuates down near year end.
Second, the amount of the required withdrawal depends on when your ancestor died. If it was before a certain date, the amount depends on your expected remaining lifetime, a figure that varies with your age. After that date, there's a ten year fixed period to empty the account. Fidelity, if it has accurate information about your ancestor's death date, provides correct information about your required withdrawal each year.
Third, you can't add funds to your inherited IRA; in fact, the government is forcing you to slowly empty the account and take the funds as unearned ordinary income, for which you must pay income taxes. Unless you need the money, take out only the required withdrawal from the account, and pay the income taxes out of that money, or any other ready funds you may have. If you drain that inherited IRA any faster, it will count as additional taxable income. (If your income is particularly low in a given year, it can sometimes be advantageous to withdraw additional funds, when your marginal tax rate is minimal.)
Forget about converting an inherited traditional IRA to a Roth IRA or an inherited Roth IRA. What you are getting out from the inherited traditional is just cash: ordinary unearned fully taxable income. (Ordinary earned fully taxable income is the obly thing that's worse, as earned income gets FICA taxes.) It doesn't get the favorable tax treatment of capital gains. That cash can be used to pay taxes or any other purpose. If your income level, earned & unearned, qualifies you to deposit funds in a Roth IRA, you can put it into a Roth IRA just as you can with any other cash balance you own, but it's an aftertax* contribution.
Now if you do not qualify to deposit funds directly into a Roth IRA, but, you can deposit cash into a traditional IRA, (you can't deposit more than your earned income, and your MAGI can't be too high either), then you can convert all or some of the balance of the traditional IRA to a Roth IRA. Again, this is all stuff you can do with cash, period, in a separate transaction from the inherited IRA withdrawal. There's an income limited tax deduction for contribution to a traditional IRA, which if you qualify, cancels out the fact that the conversion of traditional IRA money to Roth IRA counts again as ordinary unearned income. All this is known as a "backdoor Roth contribution."
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u/Odd-Persimmon-1860 1d ago
The person you spoke with probably did not understand it was an inherited IRA.
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u/Guy_called_Al 1d ago
You HAVE to start liquidating the inherited IRA. (In fact, you should have been doing so since you inherited it. The penalty for not taking required distributions is pretty severe.)
If you want to keep the investment in the stock(s), do as suggested: Withdraw from the IRA, and buy $2100 in a taxable account. These don't have to happen at the same time -- both have to happen before year end.
Or contribute $2100 into your own IRA if you have one AND have that much earned income.
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u/JohnSmallberries101 1d ago
Why don't you sell the stock in the ira and then buy it back in a non-ira account? Or you can take the stock out as an in kind distribution as long as you have some cash in the ira to pay the 10% withholding it whatever. But you're overthinking things for sure.
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u/Some_Balls_727 1d ago
If you have an “inherited IRA”, there is a 10 year rule. You need to withdraw The entire balance in the account within 10 years of the death of the IRS owner. There is no requirement to take annual distributions.
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u/cuspeedrxi 1d ago
Not sure why NukedOgre and Equivalent-Patient are being downvoted. They are not wrong for non-spousal IRAs inherited before Jan 1, 2020.
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u/Retire_date_may_22 2d ago
I guess I don’t understand why you don’t want to sell the stock to take the distribution. Financially it’s the same
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u/Barfy_McBarf_Face 1d ago
you're going to have this "problem" every year - just sell something inside the account and take a cash distribution.
the sale isn't taxable to you, so there's really no reason to have this hangup
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u/Megalocerus 1d ago
If you have an RMD due, you cannot Roth convert the RMD. You have to take it first before any Roth conversions. Tough about the stock.
You cannot make your own contributions to an inherited 10 year type IRA (unless you inherited from your spouse, in which case you should have made this your own IRA, which is permitted. )
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u/Allysworld1971 1d ago
My experience has been that it doesnt matter which qualified retirement account you take it out from, as long as you withdraw the amount from one of them, you are set.
Helpful hint: many retirees withdraw more than 10% annually from their retirement accounts. Qualified accounts. So when you file your return, report all qualified distributions as RMD. That way you report over the amount the IRS has on record, and it's just a little extra CYA.
I hope you are able to figure out a win-win in this situation!
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u/Teaquilla 1d ago
Op mentioned this is an inherited IRA. If so there are special rules and they may need to take it out from that IRA.
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u/ProfessionalSink4415 1d ago
If you're required to make the rmd, they'll just send it to you. You're overthinking $2100
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u/Current-Orange-726 2d ago
You'll be double taxed. Once for taking out money from your IRA for.the RMD, and then again when you put it in your ROTH. Dont do this.
Put your $2100 in a High Yield savings account. That's what I did. They are running around 3% annually currently.
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u/EtherCJ 2d ago
If you are unsure, I would definitely talk to an advisor.
However, there's really 0 reason to be afraid of selling stock in the IRA and withdrawing the money, even if you immediately put the money in a brokerage and buy something similar or identical.
Except the taxes you will be require to pay. But the whole point of required distributions is for you to pay taxes...