Swap identical IRA assets with non-IRA assets
Client has IRA with “ABC corp” stock with high cost basis and regular brokerage account with “ABC corp” stock with low cost basis. Wants to swap the same # of shares between accounts. Wouldn’t this be a prohibited transaction?
Permalink Submitted by Peter Lingane on Wed, 2011-11-02 19:09
Pub 590 says on p. 44 that selling stock to an IRA is a prohibited transaction.
But more to the point, the suggested “swap” seems like a pointless transaction. There are very few instances in the tax code in which a swap is a tax free transaction. If you client were to sell the stock to the IRA at the FMV and buy the same number of shares in return, the net effect is, almost certainly, that he or she would end up with a reportable gain and stock with a basis equal to the fair market value. I doubt that this is your client’s intent.
Permalink Submitted by Peter Lingane on Thu, 2011-11-03 15:42
Section 4975 lists several exceptions which allow the sale of securities between a plan/IRA and a disqualified person without triggering a prohibited transaction.
Permalink Submitted by Alan Spross on Thu, 2011-11-03 22:06
In addition to the more complex prohibited transactions issue, the plan would not work because all regular contributions to an IRA must be made in cash. You could transfer securities in kind to your IRA from another retirement account as a rollover contribution, but not from a taxable account.