interesting estate taxes and appreciating assets in an ira

i don't deal so much with estate taxes

but found a broker's idea interesting.

client has about 2 mill in ira

he's 70

he need to distribute 111k

the broker wants to distrib apple stock which is down 18% in the market.

the logic is

distr the asset OUT of the ira

so that the person who inherits it will get a step up and not pay taxes on thsi apprec asset

whereas

if left appl stock in the irs..and let's say double's before his date of death

there is no step up, but the person has to pay taxes on the IRA upon this client's passing

seems like a good idea

thoughts?

I am not following the logic. Stock cannot be transferred out. Could take cash out, buy Apple and hope it goes up in value?

in kind distributions from an ira are at fmv. Strategy depends on subsequent rise in the value of the stock and no need for the cash

Dennis has it - it's called an in kind distribution - you distribute out the stock as the required min dist at fmv.

Client's doesn't need cash and broker is betting that appl stock will rise over next 10 years.

Client's doesn't need cash and broker is betting that appl stock will rise over next 10 years.

Broker could just liquidate Apple, distribute cash, and then the guy could personally acquire Apple. You end up at the same place. So, there’s nothing magical, or interesting, about this strategy. The strategy has no economic or tax advantage over just distributing cash and buying Apple with that cash, absent fees, time savings, etc.

that was my initial thought - doing this just to save on fees....but the idea of taking an asset you expect to appreciate out of a tax-deferred seemed foreign...until consider if you do get the appreciated asset out of the ira.....the beneficiary down road will get a step up...and even if sold the stock prior to passing....will be long term cap gain (presuming holds a year) instead of ordinary income

Because he’s going to pay ordinary taxes on the FMV now. That amount becomes the basis until date of death when it would get FMV stepup or stepdown basis.

Be sure he has the cash to pay the taxes now.

but the idea of taking an asset you expect to appreciate out of a tax-deferred seemed foreign...until consider if you do get the appreciated asset out of the ira.....the beneficiary down road will get a step up...and even if sold the stock prior to passing....will be long term cap gain (presuming holds a year) instead of ordinary income

This is just all smoke and mirrors. You get the exact same result if you sell the stock inside the IRA at current value, distribute the cash, and then the client personally buys the stock with that cash. Just put the 2 scenarios side by side and you’ll see.

This broker apparently thinks he’s really smart and is on to something really important. He’s not. It’s a bad situation, actually, because he thinks he’s smart when he isn’t.

That's what I thought. I have an estate with an IRA with no beneficiaries. I don't think there is even an any opportunity for the beneficiaries to spread that over 5 years. The plus side seems to be that the taxable income from that IRA can offset expenses of Administration, e.g. Executor fee, attorney fee, tax preparation, court costs etc.

I don't think there is even an any opportunity for the beneficiaries to spread that over 5 years.

How old was the account holder when he or she died?