The words “Required Minimum Distribution” tend to stir up stress. For many business owners and retirees, it feels like a financial countdown clock tied to government rules. The pressure often comes from the fear of selling investments at the wrong time or triggering unexpected taxes.
But taking your RMD does not have to mean losing control over your investments. There is another option that keeps your portfolio intact and may even work better for your long-term goals. It is called an in-kind distribution.
Understanding what RMDs are and how in-kind options work could help you turn a stressful requirement into a smart financial decision.
The government allows you to save for retirement in accounts like IRAs and 401(k)s without paying taxes right away. Eventually, though, they want to collect. That’s where RMDs come in.
Once you turn 73, you must begin withdrawing a minimum amount from most retirement accounts. This includes:
Roth IRAs are an exception during your lifetime. However, beneficiaries must still follow distribution rules once they inherit the account.
The first RMD is due by April 1 of the year after you turn 73. After that, the deadline is December 31 each year. Miss it, and the IRS will hit you with steep penalties. So, planning is more than just helpful; it’s essential.
You are allowed to take your RMD as cash by selling investments and withdrawing the money. This approach gives you immediate access to funds, but it may also disrupt your investment strategy or force you to sell at a loss if the market is down.
That is where in-kind distributions come in. With this option, you move the actual investment, such as a stock or mutual fund, from your retirement account to a taxable brokerage account. You still meet your RMD requirement, but you keep the asset.
In-kind distributions are taxed as ordinary income based on the asset’s value at the time of transfer. The asset itself is not sold. It just moves to a new home in your portfolio.
Here’s how it works in practice: you start by choosing the investment to transfer. The market value of that investment on the day of the move is reported as income. Then, the investment goes into your taxable account unchanged. You don’t get cash, but you do meet the IRS requirement.
This method helps you stay invested in assets you believe in. It also gives you more control over timing. You avoid locking in a loss during a downturn, and you can plan for future capital gains treatment.
In-kind distributions are not available for every account or investment. They work best with IRAs and certain types of investments like:
If you have a workplace retirement plan, like a 401(k), you may be limited. Some plan administrators allow in-kind transfers while others do not. You’ll need to check with your provider to confirm your options.
It’s also important to note that specialty investments may not qualify. That includes privately held assets or certain alternative investments. Always verify before making a move.
There are some clear situations when in-kind RMDs might be the right move.
Maybe you have investments that have dropped in value, but you believe they will recover. Selling now would lock in a loss but transferring them allows you to stay the course.
You might not need the cash from your RMD to cover expenses. In that case, preserving your investments may align better with your overall plan.
Also, once the investment is in your taxable account, any growth is eligible for capital gains treatment. That can be more tax-friendly over time than constantly withdrawing and reinvesting.
Start by confirming that your IRA provider supports in-kind transfers. Then identify which investments you want to move. The total value should match or exceed your RMD amount for the year.
Make sure your taxable brokerage account is ready to receive the assets. Complete all required paperwork with accurate details. Once the transfer is complete, double-check that it was recorded correctly.
Work with your advisor or tax preparer to ensure the transfer is properly reported. They can help you avoid errors and make sure your cost basis is documented correctly.
In-kind distributions do have some added complexity. The value of the asset at the time of transfer becomes your new cost basis. You will need to track that for future capital gains reporting.
You will receive a 1099-R that shows the value of the transferred investment as taxable income. You will also need to be ready to pay the taxes out of pocket since you are not withdrawing cash.
Some custodians charge fees for in-kind transfers. You should also confirm whether your desired investments are eligible.
The process requires more paperwork and a bit more planning, but the flexibility and control can be well worth the effort.
Even though you are not receiving cash, you still owe income taxes on the full value of the asset you moved. That income is taxed at your ordinary rate for the year.
The transferred investment keeps its identity, but it gets a new cost basis. The day you transfer it determines both the value and the start of the holding period. That holding period matters later if you sell and want to qualify for long-term capital gains.
Keeping good records now saves you from a headache during future tax seasons.
In-kind distributions can offer a flexible, tax-smart way to meet your RMD requirements. They allow you to preserve your investment strategy, manage taxes proactively, and avoid selling at the wrong time. If you are thinking about your next move, now is the time to explore whether in-kind fits your plan.
Tax rules and RMD requirements change often, so staying informed is key. Review your strategy at least once a year. Talking it through with a trusted advisor can help you feel confident and prepared.