|Overcoming rollover fears and anxieties
Dear Boomer Bucks,
I have an interesting dilemma.
I have a significant amount of stock in a hometown
bank that I was given by my parents over time (estate planning).
It has done very well and I do not plan to sell over the next 20
years; otherwise my family will never live it down. At the same
time I'm interested in investing in real estate.
I have an IRA and I am wondering if I can somehow
transfer that stock to my IRA and get back cash without incurring
taxes on the stock. Can I get a loan from my IRA and pay it back
with stock? Do you have any suggestions?
-- Atlanta Geek
It's an interesting dilemma indeed if you receive stock as a gift,
but can't sell it for 20 years.
Unfortunately, you can't sell stock that you own to
your IRA. That would be a prohibited transaction. You also cannot
borrow from an IRA, except for a short 60-day period, if you request
a distribution for rollover purposes. However, it's generally a
bad idea to borrow these funds for such a short period because of
the risk that you won't complete the rollover within that 60-day
window. You can take an early withdrawal from an IRA, but would
have to pay taxes plus a 10-percent penalty if you're younger than
You can invest in real estate with IRA proceeds if
you select an IRA custodian that allows you to do so, points out
financial planner Michael Kitces. "Not that it's an avenue
I really encourage because it's full of pitfalls," he says,
"but if the reader has cash available in the IRA for investing,
he could choose to invest in real estate using the IRA funds."
Some IRA custodians that allow you to do this include
Pensco, Equity Trust Co. and Entrust. Be wary of administration
fees; they're much higher than you'd pay in an IRA account held
with a broker.
My suggestion: If the stock has appreciated nicely,
and you'd like to use the proceeds to invest in real estate, sell
at least some of it and pay long-term capital gains tax. (You'll
have to use your parents' cost basis to determine the taxable amount.
If your parents had waited until after their death to give you the
stock as an inheritance, your basis would be the fair market value
of the shares on the date of death.)
The gift you received obviously has strings attached.
See if you can cut them by talking to your folks about your financial
needs or preferences. Also, I recommend that you consult a financial
planner who can best advise you about diversification and the liquidity
issues you may have.
I am planning to retire from Kraft Foods on Oct. 1, 2006. I have
the option of taking a monthly sum for the rest of my life as well
as my wife. They also offer a lump-sum option. The pension plan
pays about 6.33 percent. If I take the lump sum option it looks
like the best I can do is 5 percent.
I would like to take the retirement in monthly
payouts, but after reading your report on pensions is it wise to
take this option? Can they stop my retirement payments once I have
retired? Any advice you can give me is appreciated.