An in-kind transfer into an individual retirement account is possible but not always feasible. Whether this type of transfer will work depends on where the money is coming from, what types of securities are to be transferred and the rules of the new IRA account. In order to avoid paying taxes on specific funds, an in-kind transfer will be a smooth transition without any withdrawals.
Most of the time, there are no fees associated with an in-kind transfer as well. It is a financially safe transaction used to move funds from one bank/brokerage to another.
Read More: How Long Does it Take to Transfer Money?
Understanding a Transfer In-Kind
A transfer in-kind means the securities – such as stocks, bonds or mutual fund shares – are transferred directly to another account, usually of the same or similar nature. In other words, a stock is simply transferred to another broker who will manage it after the transfer.
A transfer in-kind avoids the necessity to sell the investments, convert them to cash, have the cash amount transferred to a new account and then re-buy the securities. Investment brokerage firms have a system in place that allows transfer in kind of brokerage account securities including securities held in IRA brokerage accounts.
Non-IRA-to-IRA Transfer Rules
You cannot transfer in-kind securities held in a regular, non-IRA brokerage account to an account designated as an IRA. IRA money can only come from cash contributions or rollover and transfers from other qualified retirement plans. The stocks and bonds held in your regular brokerage account were not purchased with tax-qualified money, so those securities cannot be transferred to an IRA.
IRA-to-IRA Transfer Process
The most common type of transfer in kind is from an IRA account held at one brokerage firm that is transferred to an IRA account at another broker. The transfer request form from the receiving IRA will allow you to indicate whether you want to transfer securities in kind or convert to cash. Direct rollovers from an employer retirement plan such as a 401(k) plan to an IRA can also be requested as a transfer in kind. In most cases, you can even designate which securities you want to transfer and which should be sold and transferred as cash.
In-Kind Transfer Considerations
Not all securities can be transferred in kind and you should check with the receiving brokerage firm to see if they will accept the securities in the current IRA. Stocks, bonds and exchange-traded fund – ETF – shares should transfer with no problem.
Mutual fund share transfers are often dependent on whether the receiving broker handles the specific fund family and the class of fund shares. Some 401(k) plans use a certain class of mutual fund share that is not used outside of qualified retirement plans and may not be transferable. Trying to transfer securities the new broker will not accept can significantly delay the completion of the transfer.
Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.