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Last year we gifted to my son some stocks we had been grooming for him for years. Market value close to $20K. The transfer was done in three pieces, around $4K in cash, and the rest in two separate transfers of securities, account to account within Fidelity. Looking at the cost basis, or even the market value, both totals are well under the annual exception for me and DW, which I believe would be $28K.

My understanding was that, that since the gift is under the 28K annual gift exception limit, neither we or my son had to declare anything. But recently DW was told by someone that we had to declare it, so my son did not have to pay taxes on it. I have been looking at IRS form instructions but found nothing specific to that effect. Most references are related to the donor's end. Nothing about the recipient.

I will appreciate any words of wisdom on the subject

Tony
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You need to provide your son with the cost basis of the stocks. As a gift, the cost basis is the lesser of the value at the time of transfer or the purchase cost.
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Last year we gifted to my son some stocks we had been grooming for him for years. Market value close to $20K. The transfer was done in three pieces, around $4K in cash, and the rest in two separate transfers of securities, account to account within Fidelity.

Was the $4k already cash or was it the result of a sale of securities? If the result of sale there is some reporting on that (included in one of your tax returns).
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>> You need to provide your son with the cost basis of the stocks. As a gift, the cost basis is the lesser of the value at the time of transfer or the purchase cost.


I assume the transfer Fidelity-to-Fidelity account transferred the basis and dates. It would be ludicrous if Fidelity does not carry it over. I will check with him.
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Was the $4k already cash or was it the result of a sale of securities? If the result of sale there is some reporting on that (included in one of your tax returns).

It was the result of liquidating some entries. He just got cash. I am handling the capital gains on my side.
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It would be ludicrous if Fidelity does not carry it over. I will check with him.

When I convert shares from Ameritrade IRA to my Ameritrade Roth-IRA, they lose the cost basis and set it to 0. Does not matter much, but a nuisance.

When I take shares from my Ameritrade IRA (as part of Minimum Required Distribution) and put them into my Ameritrade Margin account, they lose the cost basis as well, setting it to zero. This is worse because I need the cost basis on the day of the transfer for future tax purposes, and the confirmation slip does not include the value at the time of the transfer. And looking up the prices on the day of the transfer do not help because I never know the exact minute the transfer happened.

As it is, this year, I took the rest of my MRD by transferring 100 shares of stock. And later, I found out that I must still take another $51 from my IRA to satisfy my MRD. So I should now be able to calculate the price. But I should not have to do that.
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When I take shares from my Ameritrade IRA (as part of Minimum Required Distribution) and put them into my Ameritrade Margin account, they lose the cost basis as well, setting it to zero. This is worse because I need the cost basis on the day of the transfer for future tax purposes, and the confirmation slip does not include the value at the time of the transfer. And looking up the prices on the day of the transfer do not help because I never know the exact minute the transfer happened.
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As you say, in that setting your cost basis in the shares transferred from the IRA is the fair market value on the date of transfer. And I've never had it come up on this point, but I'm sure you don't need to know the exact minute of the transfer. For gift and estate taxes, and for charitable contributions, the "fair market value on the date of transfer" is the average of the high and low prices for that date.

Resetting it to zero is silly, but the cost basis within the IRA account is not relevant anymore, either.

Bill
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When I convert shares from Ameritrade IRA to my Ameritrade Roth-IRA, they lose the cost basis and set it to 0. Does not matter much, but a nuisance.

When I take shares from my Ameritrade IRA (as part of Minimum Required Distribution) and put them into my Ameritrade Margin account, they lose the cost basis as well, setting it to zero. This is worse because I need the cost basis on the day of the transfer for future tax purposes, and the confirmation slip does not include the value at the time of the transfer. And looking up the prices on the day of the transfer do not help because I never know the exact minute the transfer happened.

As it is, this year, I took the rest of my MRD by transferring 100 shares of stock. And later, I found out that I must still take another $51 from my IRA to satisfy my MRD. So I should now be able to calculate the price. But I should not have to do that.


Note that my transfer was not from an IRA but across taxable accounts. I still think Fidelity must have preserved the cost basis. I need to talk to my son to see if was done or not.

In your case, from my understanding, in an IRA, normal or ROTH, for tax purposes the cost basis is irrelevant.
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As you say, in that setting your cost basis in the shares transferred from the IRA is the fair market value on the date of transfer. And I've never had it come up on this point, but I'm sure you don't need to know the exact minute of the transfer. For gift and estate taxes, and for charitable contributions, the "fair market value on the date of transfer" is the average of the high and low prices for that date.

Resetting it to zero is silly, but the cost basis within the IRA account is not relevant anymore, either.


True, but the transfer to my Margin account needs the exact amount, not the daily average because I am not allowed to convert anything from my IRA to my Roth-IRA until I have taken my full required distribution. And I thought I had, but my broker would not let me do it until I take the last $51. And they, and only they, know what the value of those 100 shares was. I do not need the original cost basis (that they for the most part do not have for some unknown reason), but they surely are in the best position to know the value of the stock at the moment THEY transferred it from one of their accounts to another of their accounts.
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In your case, from my understanding, in an IRA, normal or ROTH, for tax purposes the cost basis is irrelevant.

But the cost basis of shares entering the Margin account (taxable) is very relevant. Not the original price of those shares, but the price at the moment of transfer. And this matters immediately to the IRA because it affects whether I have taken the entire MDR out of the IRA. And it matters subsequently to the Margin account if I ever sell that stock.
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I think I have a handle on the taxes owed in selling the $4K and future sale of the transferred securities. Going back to my original post, the key piece for me is

My understanding was that, that since the gift is under the 28K annual gift exception limit, neither we or my son had to declare anything.

So the question is if we or our son have to declare the actual gifting fact.

My thinking is that we do not have to.
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So the question is if we or our son have to declare the actual gifting fact.

My thinking is that we do not have to.


Your son does not declare anything until the stock is sold.

Whether or not you need to report the gift depends on how the account from which it was transferred is titled.

http://wills.about.com/od/understandingestatetaxes/qt/What-I...

So what about the $20,000 to Betty? Will $6,000 of the $20,000 given to her be considered a taxable gift or not? This will depend on two factors - (1) how the account(s) where the money came from were titled, and (2) whether or not you agree to split the gifts with your spouse.

If the gifts to Betty came from a joint account titled in the names of you and your spouse, then since each of you can give Betty $14,000 the gifts won't be taxable. If on the other hand the gifts to Betty came from an account in your spouse's sole name, then you and your spouse will have to decide if you want to split the gift to Betty or not. If you agree to split Betty's gift, then the total $20,000 will qualify as an annual exclusion gift, but you and your spouse will need to report the split gift to the IRS using Form 709 as discussed above. If you do not agree to split Betty's gift with your spouse, then your spouse will need to report a $6,000 taxable gift to the IRS using Form 709.
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But the cost basis of shares entering the Margin account (taxable) is very relevant. Not the original price of those shares, but the price at the moment of transfer. And this matters immediately to the IRA because it affects whether I have taken the entire MDR out of the IRA. And it matters subsequently to the Margin account if I ever sell that stock.

No, you still don't understand things. The price for the transfer is the average of the high and low on the date the transfer occurs, not an instantaneous price. It is this average price which becomes your cost basis and determines if you have taken your full RMD.

Additionally, I'm not aware of any broker that will restrict traditional->Roth conversions because an RMD hasn't been taken. It is your responsibility to make sure that you comply with the tax laws and the broker's responsibility to report what has transpired within the account(s). If you convert too much and don't distribute enough to make your RMD, you will find out when you prepare your tax return or when the IRS sends you a penalty notice.

I can think of many reasons why someone would want to do a Roth conversion early in the year, yet defer their RMD to the end of the year.

Ira
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Additionally, I'm not aware of any broker that will restrict traditional->Roth conversions because an RMD hasn't been taken.

It maybe your responsibility, but brokers do limit the ability to do a conversion until the RMD has been taken.


https://www.fidelity.com/static/dcle/ira/documents/Roth_IRA_...

Affirm that, if you are required to take a
Required Minimum Distribution, you have
done so for the current year pursuant to
Section 401(a)(9) of the Internal Revenue
Code with respect to your Fidelity IRA
prior to this conversion, and you accept
full responsibility for complying with
these requirements.
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It maybe your responsibility, but brokers do limit the ability to do a conversion until the RMD has been taken.

https://www.fidelity.com/static/dcle/ira/documents/Roth_IRA_......

Affirm that, if you are required to take a Required Minimum Distribution, you have done so for the current year pursuant to
Section 401(a)(9) of the Internal Revenue Code with respect to your Fidelity IRA prior to this conversion, and you accept full responsibility for complying with these requirements.

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Strikes me as hyper-cautious on their part, considering that the account holder can have multiple IRAs with multiple custodians, and multiple accounts with Fidelity, and only want to convert part of one particular account.

Bill
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No, you still don't understand things. The price for the transfer is the average of the high and low on the date the transfer occurs, not an instantaneous price. It is this average price which becomes your cost basis and determines if you have taken your full RMD.

What you say may conform to the tax law. But it is not what Ameritrade had done. I transferred some money from my IRA to either my checking account and some shares to my margin account. I took the average price of the stock for the transfer day and subtracted it from the amount I still had to take out of the IRA to satisfy the RMD. I then sent the rest to my checking account. Now if I look at Ameritrade's web page, it says I still must take out $51 from the IRA to satisfy my RMD, and I did not make a mistake. And in the past, Ameritrade has been quite clear that I cannot convert anything from my IRA into my Roth-IRA until I have taken out the full RMD. This may not be federal law or IRS regulation, but Ameritrade enforces it.

Additionally, I'm not aware of any broker that will restrict traditional->Roth conversions because an RMD hasn't been taken.

Last year (during 2013) Ameritrade would not let me make the conversion to Roth until I had taken out the full RMD.

It is your responsibility to make sure that you comply with the tax laws and the broker's responsibility to report what has transpired within the account(s).

I agree. But Ameritrade seems to enforce a stricter policy to ensure that I convert nothing until after I take out their idea of what the full RMD is.

If you convert too much and don't distribute enough to make your RMD, you will find out when you prepare your tax return or when the IRS sends you a penalty notice.

I can think of many reasons why someone would want to do a Roth conversion early in the year, yet defer their RMD to the end of the year.

As can I. But Ameritrade would not let me do it in 2013.
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Hey JD,

But Ameritrade seems to enforce a stricter policy to ensure that I convert nothing until after I take out their idea of what the full RMD is.

If you convert too much and don't distribute enough to make your RMD, you will find out when you prepare your tax return or when the IRS sends you a penalty notice.

I can think of many reasons why someone would want to do a Roth conversion early in the year, yet defer their RMD to the end of the year.

As can I. But Ameritrade would not let me do it in 2013.


This is all very interesting to me. I am wondering if Schwab is so "darn picky" about the Conversion and RMD sequence. Since I've already taken my RMD for 2014 "just to get it out of the way" I guess I won't find out until next year?

Rich
Arizona
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What you say may conform to the tax law. But it is not what Ameritrade had done. I transferred some money from my IRA to either my checking account and some shares to my margin account. I took the average price of the stock for the transfer day and subtracted it from the amount I still had to take out of the IRA to satisfy the RMD. I then sent the rest to my checking account. Now if I look at Ameritrade's web page, it says I still must take out $51 from the IRA to satisfy my RMD, and I did not make a mistake. And in the past, Ameritrade has been quite clear that I cannot convert anything from my IRA into my Roth-IRA until I have taken out the full RMD. This may not be federal law or IRS regulation, but Ameritrade enforces it.

Given that it is possible for you to have multiple IRAs at different brokerage houses, how can Ameritrade decide that your entire RMD must come out of the account that they hold? How do they know that you didn't take the rest of your RMD out of another IRA? This is not something they should be controlling, and so I'd be shopping for another brokerage starting now. I certainly would not wait for another year to see what other restrictions Ameritrade puts into effect.
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Given that it is possible for you to have multiple IRAs at different brokerage houses, how can Ameritrade decide that your entire RMD must come out of the account that they hold? How do they know that you didn't take the rest of your RMD out of another IRA? This is not something they should be controlling, and so I'd be shopping for another brokerage starting now. I certainly would not wait for another year to see what other restrictions Ameritrade puts into effect.

You raise very reasonable questions.

It happens that I do not have accounts at other brokerage houses. I deliberately closed an IRA at Schwab and merged it into my Ameritrade one to avoid the complications of having two brokerage houses. Furthermore, Schwab said there would never be a service charge on my account provided I kept at least $25,000 in it, which I did, and a few years later they started imposing a service charge anyway, saying the new requirement was for $50,000 minimum. So I was pissed at them. (They did charge commissions for trades; that was not the problem.)

And I had moved from Fidelity to (Aufhauser to) Ameritrade because Fidelity had extremely high commissions and I could not stand that, especially since I was doing Unemotional Growth strategy (not recommended, and I assume no one uses it anymore) that involved a lot of monthly trading. Aufhauser give free trades (up to 20 a month) for a fixed fee of $800/year, so it mattered a lot to me in those days.

But moving accounts from one brokerage to another was such a royal pain that I do not think I will ever do it again. It took many months to effect the transfer. First, they moved the stock. But they forgot the dividends on the stock. So I had them move the dividends, but they forgot the interest on the dividends, etc., etc., etc., ....
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But moving accounts from one brokerage to another was such a royal pain that I do not think I will ever do it again. It took many months to effect the transfer. First, they moved the stock. But they forgot the dividends on the stock. So I had them move the dividends, but they forgot the interest on the dividends, etc., etc., etc., ....

Dividends can dribble in over a number of months after the stock has been transferred. I received a number of small checks after transferring an account. The brokerage annoyed me to the point that it was worth it.
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This is all very interesting to me. I am wondering if Schwab is so "darn picky" about the Conversion and RMD sequence.

I'm pretty sure the law requires that you take your RMD before you do a conversion. So I'd expect any broker to ask about that.

However, since you can take your RMD from any IRA account for ALL of your IRA accounts, it would be easy to lie to a broker and say you took your RMD from some other account. Not that I'd advocate doing so at all.

--Peter
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This is getting ridiculous. You do not have to take your RMD before you do a conversion. If some ribbon clerk tells you that you must, move your account or ask the ribbon clerk for a cite. "They" and corporate lawyers don't count.

Phil
Rule Your Retirement Home Fool
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This is getting ridiculous.

Yes, it is.

You do not have to take your RMD before you do a conversion.

But I think you do. And I'm not a ribbon clerk or a corporate lawyer. ;-)

How about Pub 590? http://www.irs.gov/publications/p590/ch01.html#en_US_2013_pu...

Required distributions. You cannot convert amounts that must be distributed from your traditional IRA for a particular year (including the calendar year in which you reach age 70½) under the required distribution rules (discussed later in this chapter).

Or something more authoritative: Treas Reg 1.408A-4 Q&A-6

Q-6. Can an individual who has attained at least age 701/2 by the end of a calendar year convert an amount distributed from a traditional IRA during that year to a Roth IRA before receiving his or her required minimum distribution with respect to the traditional IRA for the year of the conversion?

A-6.
(a) No. In order to be eligible for a conversion, an amount first must be eligible to be rolled over. Section 408(d)(3) prohibits the rollover of a required minimum distribution. If a minimum distribution is required for a year with respect to an IRA, the first dollars distributed during that year are treated as consisting of the required minimum distribution until an amount equal to the required minimum distribution for that year has been distributed.


--Peter
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So the brokers are following the law, and not making up their own rules.
Who would have thought?

Bill
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I'm pretty sure the law requires that you take your RMD before you do a conversion. So I'd expect any broker to ask about that.

However, since you can take your RMD from any IRA account for ALL of your IRA accounts, it would be easy to lie to a broker and say you took your RMD from some other account. Not that I'd advocate doing so at all.


Sorry Peter. This is one of those provisions where IRAs and 401(k)'s are different. You can take your IRA RMD from any combination of accounts you choose. An individual custodian has you way of knowing what your RMD is

Phil
Rule Your Retirement Home Fool
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