question about TIPS/Treasuries in traditional IRA and RMDs

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protagonist
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question about TIPS/Treasuries in traditional IRA and RMDs

Post by protagonist »

When meeting RMD requirements with TIPS that have not yet matured held in a traditional IRA, is it necessary to sell the TIPS at whatever the market value is at the time prior to moving them into one's taxable account, thus potentially incurring a loss?
Or can they be moved "in kind" into taxable, thus allowing them to be held to maturity?
And if the latter, would they be taxed that year based on whatever the market value is on the date they are moved?

Thanks in advance.
Doc7
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Re: question about TIPS/Treasuries in traditional IRA and RMDs

Post by Doc7 »

protagonist wrote: Wed Mar 22, 2023 7:14 am When meeting RMD requirements with TIPS that have not yet matured held in a traditional IRA, is it necessary to sell the TIPS at whatever the market value is at the time prior to moving them into one's taxable account, thus potentially incurring a loss?
Or can they be moved "in kind" into taxable, thus allowing them to be held to maturity?
And if the latter, would they be taxed that year based on whatever the market value is on the date they are moved?

Thanks in advance.

Can you explain to me why you would incur a loss when selling at market value in one account and purchasing at the same market value in another account?
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protagonist
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Re: question about TIPS/Treasuries in traditional IRA and RMDs

Post by protagonist »

Doc7 wrote: Wed Mar 22, 2023 7:51 am
protagonist wrote: Wed Mar 22, 2023 7:14 am When meeting RMD requirements with TIPS that have not yet matured held in a traditional IRA, is it necessary to sell the TIPS at whatever the market value is at the time prior to moving them into one's taxable account, thus potentially incurring a loss?
Or can they be moved "in kind" into taxable, thus allowing them to be held to maturity?
And if the latter, would they be taxed that year based on whatever the market value is on the date they are moved?

Thanks in advance.

Can you explain to me why you would incur a loss when selling at market value in one account and purchasing at the same market value in another account?
I see your point (I'm relatively new to the whole TIPS/Treasuries market and am still learning). Perhaps my question is a stupid one.
If you immediately purchased in another account it might not incur a change in value, but you would have to purchase at whatever the current YTM was at that time, which would likely differ from when you purchased the TIPS initially.
Perhaps the overall effect would not be significant if the yield to maturity at time of transfer changed proportional to the change in sales price.
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martincmartin
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Re: question about TIPS/Treasuries in traditional IRA and RMDs

Post by martincmartin »

protagonist wrote: Wed Mar 22, 2023 8:02 am
Doc7 wrote: Wed Mar 22, 2023 7:51 am
Can you explain to me why you would incur a loss when selling at market value in one account and purchasing at the same market value in another account?
I see your point (I'm relatively new to the whole TIPS/Treasuries market and am still learning).
If you immediately purchased in another account it might not incur a change in value, but you would have to purchase at whatever the current YTM was at that time, which would likely differ from when you purchased the TIPS initially.
Perhaps the overall effect would not be significant if the yield to maturity at time of transfer changed proportional to the change in sales price.
I think what Doc7 is saying is:
  • You buy a TIPS for $100 in your IRA.
  • Later, you sell it for $90 in your IRA, then buy one for $90 in your taxable account.
In that second bullet, your total cash doesn't change, and neither does the total value you have in TIPS. The net effect is to move the TIPS out of your IRA into your taxable account.

Of course, you'll pay taxes on the $90, and there may be transaction fees or bid-ask spread. But at the high level, there's no loss.
Last edited by martincmartin on Wed Mar 22, 2023 9:15 am, edited 1 time in total.
sycamore
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Re: question about TIPS/Treasuries in traditional IRA and RMDs

Post by sycamore »

I've not done it but I've seen other Bogleheads mention their RMD of mutual funds was done in-kind from IRA to taxable account. Pretty sure it was at Vanguard. I don't imagine some brokerages allow for this, and some don't.

I wonder what size of bond can be transferred, e.g. only in $1,000 increments?

Assuming you can do it, one question is: what's the basis and holding period of the TIPS bonds that were transferred? Do they retain the original characteristics of when you bought them?
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protagonist
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Re: question about TIPS/Treasuries in traditional IRA and RMDs

Post by protagonist »

martincmartin wrote: Wed Mar 22, 2023 8:35 am
protagonist wrote: Wed Mar 22, 2023 8:02 am
Doc7 wrote: Wed Mar 22, 2023 7:51 am
Can you explain to me why you would incur a loss when selling at market value in one account and purchasing at the same market value in another account?
I see your point (I'm relatively new to the whole TIPS/Treasuries market and am still learning).
If you immediately purchased in another account it might not incur a change in value, but you would have to purchase at whatever the current YTM was at that time, which would likely differ from when you purchased the TIPS initially.
Perhaps the overall effect would not be significant if the yield to maturity at time of transfer changed proportional to the change in sales price.
I think what Doc7 is saying is:
  • You buy a TIPS for $100 in your IRA.
  • Later, you sell it for $90 in your IRA, then buy one for $90 in your taxable account.
In that second bullet, your total cash doesn't change, and neither does the total value you have in TIPS. The net effect is to move the TIPS out of your IRA into your taxable account.

Of course, you'll pay taxes on the $90, and there may be transaction fees of bid-ask spread. But at the high level, there's no loss.
So ignoring the bid-ask spread and taxes paid, the yield to maturity at time of sale should change exactly inversely proportional to the change in value, effectively providing you with the same overall profit at maturity that you would have received if you left the bond in your IRA?
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martincmartin
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Re: question about TIPS/Treasuries in traditional IRA and RMDs

Post by martincmartin »

protagonist wrote: Wed Mar 22, 2023 9:11 am So ignoring the bid-ask spread and taxes paid, the yield to maturity at time of sale should change exactly inversely proportional to the change in value, effectively providing you with the same overall profit at maturity that you would have received if you left the bond in your IRA?
Ignoring the bid-ask spread means you consider the buy and sell prices to be the same. You're proposing selling in your IRA and buying in your taxable, so the amount of money you get from selling it should be equal to the amount you pay when buying.

There are various subtleties, e.g. maybe you want to/have to wait a few days for the sale to settle, and move the cash out of your IRA, before buying in taxable, and maybe the price changes in those days.

And if you can move in-kind that certainly sounds more straight forward; I have no idea whether that's possible, I've never had to move anything out of an IRA.

I was just trying to explain Doc7's comment "why do you think there would be a loss if you sell in IRA & buy the same thing in taxable?"
LongRoad
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Re: question about TIPS/Treasuries in traditional IRA and RMDs

Post by LongRoad »

While it's permitted to distribute RMDs in kind, this would be a good question for your IRA custodian as to whether/how they implement it.

The other question might be, whether your strategy includes holding TIPS in taxable at all. If so, then in the worst case, you could just purchase TIPS with the RMD proceeds if necessary.
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ResearchMed
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Re: question about TIPS/Treasuries in traditional IRA and RMDs

Post by ResearchMed »

sycamore wrote: Wed Mar 22, 2023 8:59 am I've not done it but I've seen other Bogleheads mention their RMD of mutual funds was done in-kind from IRA to taxable account. Pretty sure it was at Vanguard. I don't imagine some brokerages allow for this, and some don't.

I wonder what size of bond can be transferred, e.g. only in $1,000 increments?

Assuming you can do it, one question is: what's the basis and holding period of the TIPS bonds that were transferred? Do they retain the original characteristics of when you bought them?

We have transferred "in kind" from TIRA to taxable. We can either withhold taxes from that transfer or pay the taxes separately.
Whether it's an/the "RMD" isn't necessarily relevant to the transfer process. That depends upon the situation of the account owner and whether RMDs are required/already taken (at that brokerage or elsewhere).

We've done this at several brokerage firms.

RM
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Prokofiev
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Re: question about TIPS/Treasuries in traditional IRA and RMDs

Post by Prokofiev »

Even if you have your TIRA 100% TIPS, there is a good chance that the bonds will give you enough interest each year to pay your
RMD. The bonds real yields range from .125 to 3.6% plus inflation of 1-6%. So getting 4% interest is very doable and close to your
RMD. If that is not enough, you can always sell a small additional portion of the TIPS to top off the RMD. I would not try and transfer
the actual bonds to my taxable account.

If you have an actual TIPS ladder in your TIRA, then one rung per year will mature (roughly 3.5-4%) which can be taken as your RMD.
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Topic Author
protagonist
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Re: question about TIPS/Treasuries in traditional IRA and RMDs

Post by protagonist »

Thanks to everybody above who responded....good information!!
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