If you are having difficulty parting with stock you must to cash out to satisfy your annual IRA required minimum distribution (RMD), Kiplinger’s article, “Retirees, Shift Stock to Satisfy Your RMD,” says you can keep your shares and make the federal government happy at the same time. The technique is known as an “in kind” transfer.

There’s no requirement that you withdraw cash from your IRA, just that a certain amount has to be withdrawn each year starting at age 70½ for tax purposes. It’s fine to have stock or mutual fund shares transferred from your IRA to a taxable account to satisfy your RMD.

Retirees thinking about this move are those who are more likely not to need their RMD for spending money and who feel their stocks can grow in value. Another option is to sell the stock and use the payout from your IRA to repurchase the shares in a taxable account. However, a transfer has some advantages: (i) you’re certain to keep the money invested and (ii) you’re saving some money in transaction expenses.

To do this, calculate the amount you must withdraw from your IRA for the year by dividing your account balance, as of December 31 of the previous year by the IRS factor for your age. That factor can be located in IRS Publication 590-B. You then tell your IRA custodian to transfer stock or mutual fund shares whose total value equals the RMD amount, from the IRA into a taxable account.

Both you and the IRS will receive a 1099-R from the IRA custodian that shows a distribution of the amount that the shares were valued at on the day of the transfer. You’ll owe tax on the full amount, assuming you hadn’t made non-deductible contributions to the IRA.

Remember that the market can fluctuate between the time you request the in-kind transfer and when it is actually executed. Transfers are valued using the market close price on the day of transfer. Make sure to circle back with your custodian after the move is made to find out the actual value so you are certain to satisfy the RMD. If the transfer was short of your required minimum distribution, you’ll need to move more shares or withdraw cash. If you fail to do this, you’re subject to a penalty of 50% of the shortfall.

As you can see, there’s more to transferring stocks than simply zapping cash from the IRA. Don’t wait until December 31 to do this. Get it done right now. Finally, note that once the shares move to the taxable account, their tax basis changes to their value at the time of transfer. So if you paid $10,000 for the shares inside your IRA but they’re worth $15,000 at the time of the transfer, you’ll be liable for tax on the $15,000.

Reference: Kiplinger’s (December 2016) “Retirees, Shift Stock to Satisfy Your RMD”