You can take a distribution from your Traditional Individual Retirement Account in the form of either cash or investment securities.
Taking your distribution in the form of stock is an efficient way to move high growth, low dividend assets out of your IRA into your individual account so that future appreciation will be taxed at capital gain tax rates rather than marginal ordinary income tax rates.
Any time there is a stock market decline (such as our recent stock market experience) is an ideal time to take an IRA distribution of a stock that is severely depressed. You pay tax on only the current low fair market value. The subsequent rebound in value will be taxed at the more favorable capital gains rates rather than the ordinary marginal rates that will eventually apply to all gains inside the IRA when you take future distributions.
If you choose to take a distribution in the form of stock, your cost basis per share is the average trading price on the date of distribution from your Traditional IRA. This is the amount that will be reported to you as taxable income from IRA distributions on your Form 1099-R at the end of the tax year.
If you choose to take your distribution in the form of a bond, note, or mutual fund shares, the same principles apply. Your cost basis after the distribution will be the average trading price for the bond, note, or mutual fund shares on the date of the distribution.
Information provided is intended solely for cash-basis U.S. citizen individual taxpayers and is believed to be accurate for most cases but is not guaranteed. Always consult your personal tax advisor about your own situation. Suggestions are most welcome. Please email our webmaster @ costbasis.com with your comments. If this website has been helpful to you, please consider making a donation to support our efforts.