Roth Convert – Value Traded Stock
How does one value publicly traded stock in an IRA for Roth conversion valuation purposes? Would it be the average of the high/low for the day of transfer (like a charitable contribution)? Charles Schwab says it’s the closing price. But that doesn’t sound right. Any IRC reference supporting this would be appreciated.
Permalink Submitted by mk foss on Sat, 2010-03-06 00:51
The custodian is the one issuing the 1099Rs on stocks distributed from IRAs. They use the closing price which is fine because we are not establishing any basis or valuing a deduction. I don’t have anything more specific than that for you.
Permalink Submitted by Jim McGurren on Sun, 2010-03-07 20:58
“because we are not establishing any basis or valuing a deduction” – huh? No….we’re paying tax on the value of the conversion. That has to count for something.
Permalink Submitted by Alan Spross on Sun, 2010-03-07 21:38
Jim,
I could not locate any IRS Reg on this either. I suspect that with all the varying valuation times for various IRA assets throughout the day or even the month for some illiquid assets, each IRA custodian is free to use whatever makes sense in their processing platform. For instance, if Schwab processes all these conversion late in the day after the market is closed, their logical choice would be the closing price, and that would probably be the regular closing price, not the extended market hours closing price. Since a Roth conversion is nothing more than a distribution, the same criteria should apply to someone making an in kind distribution to a taxable account instead of a Roth IRA.
The main concern of the IRS appears to be stopping various schemes for converting undervalued assets to a Roth IRA, such as the variable annuity conversion scams that were addressed in 2005.
If you want to convert a volatile stock that may bounce around 10 or 20% in value per hour, then perhaps there is a benefit of discussing with the custodian your options to control the conversion, for example putting some kind of price limit on it so that processing is stopped if the price has exceeded $x……………while they may not like that, it is still cheaper than processing a recharacterization.
Permalink Submitted by Jim McGurren on Sun, 2010-03-07 21:40
Thank you for your very thorough response and suggestion. I will try that.