In Kind Transfers | Definition, Types of Accounts Eligible, Benefits, & Risks (2024)

What Is an In Kind Transfer?

An in kind transfer is the act of transferring ownership of assets from one person or entity to another without exchanging money.

In other words, you are giving someone something you own in exchange for something else they own. The most common type of in kind transfer is when you transfer stocks or mutual fund shares from one brokerage account to another.

Why Should I Do an In Kind Transfer?

There are a few reasons why you might want to do an in kind transfer.

The first is that it can be a way to diversify your investment portfolio. It can be risky if you have all of your money in one type of investment. By doing an in-kind transfer, you can spread your money in different investments, which can help protect you if one investment goes down in value.

Another rationale for making an in-kind transfer is to rebalance your portfolio. The composition of your portfolio's investments might shift over time.

For example, if you have a large amount of money in stocks and the stock market rises, your portfolio will become more strongly weighted in favor of equities.

This can be beneficial if the stock market continues to increase, but it can also be dangerous. You might lose a lot of money if the stock market falls.

One method to mitigate this risk is to rebalance your portfolio regularly. This entails selling some of your assets that have appreciated in value and purchasing more assets that have declined in value. This can help to keep your portfolio balanced and reduce your risk.

An in kind transfer can also be a way to avoid paying taxes on your investments. When you sell an investment, you may have to pay capital gains tax on the money you make. However, if you do an in kind transfer, you can avoid paying this tax.

This can be a good way to save money, but it is important to remember that you will still have to pay taxes on your investments in the transfer.

Types of Investments That Can Be Transferred in Kind

The answer to this inquiry is often determined by the guidelines established by the brokerage to which you intend to transfer assets.

Individual and joint trading accounts, IRAs, and custodial accounts for kids are all transferable.

The following are examples of genuine investments that can be transferred in kind:

• Exchange-Traded Funds (ETFs)
• Stocks
• Mutual Market Capitalization Funds
• Bonds
• Money Market Mutual Funds
• Options
• Unit Investment Trusts (UITs)
• Deposit Certificates

Precious Metals and cryptocurrency are among the investments that may be barred from in kind transfers.

When looking for a brokerage to create a new investment account, consider what assets you can shift in kind and which ones you may need to sell first.

How to Do an In Kind Transfer?

The process of in kind transfer will vary depending on the brokerages you use. The first step is to contact both brokerages and let them know you want to complete an in kind transfer.

Ensure the account numbers and other information are handy when you make the call. The customer support agent will most likely ask you questions to confirm your identification and that you have the right to conduct the transfer.

Once the brokerages have been in contact with each other and have verified that everything is in order, the in kind transfer will be completed. This typically takes a few days.

Who Can Do an In Kind Transfer?

To do an in kind transfer, both brokerage accounts must be in the same account type and provider.

The Same Account Type

The account type refers to the ownership of the account. For example, an individual brokerage account is owned by one person, while two or more people own a joint brokerage account.

You can only transfer assets between accounts that have the same ownership structure. So, if you have an individual brokerage account, you can only transfer assets to another individual brokerage account.

The Same Provider

The provider is the company that holds your investment account. For example, Vanguard and Fidelity are both providers of investment accounts.

You can only transfer assets between accounts that have the same provider. So, if you have an account with Vanguard, you can only transfer assets to another Vanguard account.

When in kind transfers are permitted in your account type in both your old and new brokerage accounts, they are usually the best approach to move assets.

It saves you money in costs, decreases risk by ensuring no open orders when you transfer your account, and is often the most tax-efficient way to accomplish transfers.

Benefits of In Kind Transfer

There are several reasons why you might want to do an in kind transfer:

1. Saves on Fees: When you sell your investments, you may have to pay commissions or other fees. However, you can avoid these fees when you do an in-kind transfer.
2. Saves on Taxes: When you sell your investments, you may have to pay capital gains tax on the money you make. However, if you do an in kind transfer, you can avoid paying this tax.
3. Reduces Risk: When you move your investments from one brokerage to another, there is always a risk that something could go wrong.
   

For example, if you forget to cancel a pending order, it could be executed at the wrong price. However, you can avoid this risk when you do an in-kind transfer.

4. Keeps Your Investment Plan on Track: If you have a long-term investment plan, selling your investments and buying new ones can disrupt your plan. However, if you do an in kind transfer, you can keep your plan on track.

What Are the Risks of Doing This Type of Transaction?

There are a few risks to consider before doing an in kind transfer:

1. Transfer May Not Be Allowed: Some brokerages don't allow in kind transfers. In this case, you'll need to sell your investments and buy new ones in your new account.
2. Transfer May Not Include All Investments: Some brokerages only allow certain types of investments to be transferred in kind. For example, you may not be able to transfer mutual funds or cryptocurrency.
3. Transfer May Take a Long Time: In some cases, in kind transfers can take weeks or even months to complete.
4. Transfer May Be Taxable: In some cases, in kind transfers may be considered a sale of your investments, which could trigger a capital gains tax.
5. Transfer May Involve Fees: Some brokerages charge fees for in kind transfers. Make sure you understand all the fees before you initiate the transfer.

Key Takeaways

In kind transfers mean transferring asset ownership without selling it or converting it to cash.

To do kind transfers, you need two things in common between the brokerages: they should be in the same account type and with the same account provider.

When in kind transfers are allowed in your account, type in your old brokerage account and your new brokerage account, in kind transfers are typically the best way of transferring assets.

There are various advantages to in kind transfers, including eliminating the need to sell the shares in your previous brokerage account before you buy them in your new brokerage account, which might result in capital gains taxes.

In conclusion, in kind transfers can be a great way to move your investments from one brokerage to another. However, there are a few risks to consider before you do an in kind transfer. Ensure you understand all the risks and fees before initiating the transfer.

FAQs

1) What is In Kind Transfer?

In in kind transfers, you're transferring ownership of an asset without selling it or converting it to cash.

2) What do I need for an In Kind Transfer to be possible?

To do in kind transfers, you need two things in common between the brokerages: they should be in the same account type and with the same account provider.

3) What are some benefits of In Kind Transfers?

There are various advantages to in kind transfers, including eliminating the need to sell the stock in your old brokerage account before buying it in your new brokerage account, which might result in capital gains taxes.

4) Are there any risks associated with In Kind Transfers?

There are a few risks to consider before doing an in kind transfer: the in kind transfer may not be allowed, you may not be able to transfer all of your investments, the in kind transfer may take a long time, the in kind transfer may be taxable, or you may have to pay fees.

5) Who can do an In Kind Transfer?

Most brokerages allow in-kind transfers for individuals with accounts in good standing. However, some brokerages may not allow in-kind transfers for accounts that are less than a certain value or for funds that have been opened for less than a certain amount of time.