What is an In-Kind Transfer and How to Do It Right to Pay As Little As Possible | Master Passive Income (2024)

If your investments are currently with a financial institution and you wish to have them transferred to a new financial institution, you will have to request the new institution to have your investments transferred from your old company to the new one.

A good example of this is to move from an online brokerage to a new one with more affordable trading fees.

One important question you need to answer is if you will do an in-cash or an in-kind transfer.

This article will help you get a better understanding of what an in-kind transfer is all about.

What Is an In-Kind Transfer?

When you speak of an in-kind transfer of investments, it means that your investments will be transferred over to a new company with no need to sell or buy.

An in-kind transfer is only possible if your investment is available at the two financial institutions. For instance, all brokerages carry most stocks while a certificate of deposit bought at a specific bank wouldn’t be available anywhere else.

Definition of In-Kind Transfer

An in-kind transfer lets you transfer your investments in between two brokers.

It means that there is no need for you to sell your investments and then transfer the cash proceeds. All you have to do is move the existing investments you have to a new broker.

In-kind transfers are accepted by most brokers, and this makes switching accounts easier while letting you avoid the tax consequences associated with selling investments.

But the investments that can be transferred in kind will differ, depending on the specific broker.

Generally speaking, most stocks, options, bonds, mutual funds, and exchange-traded funds could be transferred as is.

Some investments, specifically those that the new broker doesn’t offer or support, should be sold, and in this case, you need to transfer the sale’s cash proceeds.

It is always recommended that you raise your questions to your new broker about the investments that can be transferred in kind and refrain from making trades in your account during the transfer.

Is an In-Kind Transfer Taxable?

If your in-kind transfer is managed properly, there won’t be any tax impacts to report, but there are many ways transferring your investments in kind to a new firm can result in tax implications.

It is recommended that you consult a tax expert before you make the transfer to ensure that you understand any tax implications that might result if you move to a new firm for your particular situation.

Having said this, you have to be extra careful when you transfer brokerage firms if you have accounts for your retirement. There are some rules you need to follow so that the asset transfer won’t be deemed as a distribution.

For example, the money should be deposited into the new account within 60 days. You might end up exceeding the 60-day limit if you will handle this transfer all on your own.

It can also result in the need for you to pay both the penalties and taxes on the distribution amount. The results might become disastrous if a large retirement account is transferred.

This is why it is always wise that you let the new brokerage firm handle the process. They will ensure that things will go according to plan.

Another major tax implication often has something to do with asset sales. If you need to sell some investments for the transfer to be completed, this can lead to capital gains taxes.

Similar to most tax concerns, this will depend on the specific type of account holding your assets, your cost basis, and other factors unique to your situation.

Do I Get Charged for Moving Money?

Rocket Dollar won’t charge you for moving money from IRA to IRA or 401k. Just remember that the 401k custodian where you want to send the money from might charge to issue a check for a normal transfer.

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In order to transfer an alternative asset, bond, or stock in kind, you need to have a Rocket Dollar Gold Account.

At this point, you should set up your account in such a way that accepts in-kind transfer with their custodian partner. You will have to inform their sales team about it as soon as possible before the purchase. This is something they should know prior to the account fulfillment.

Signing up to Rocket Dollar Gold will cost you $600 with a monthly fee of $30.

If Rocket Dollar will be doing a full process of an in-kind transfer on an asset, you need to pay a fee of $400 for each asset. It is applicable once for every asset type.

For example, if you want to transfer 20,000 shares of your private stock, that is equivalent to a single asset fee.

When you transfer 20,000 sharesanda single LLC owning three real estate properties, that will be $800.

If you transfer four different properties in four different LLCs, that will be four asset charges.

There are some custodians that charge as much as $1,000 for every asset transfer.

Rocket Dollar understands that while it is not ideal to have a fee of $400, it is essential to ensure that their service team will be able to sufficiently serve all customers who need assistance on this transfer process that can be time-intensive.

The good news is that Rocket Dollar won’t charge for transferring retirement cash from a 401k rollover or another IRA transfer.

You can choose to sell out of the asset and buy it again in a new retirement account once you have opened your account at Rocket Dollar.

Just be careful of the prohibited transactions rule as you do this since every buying and selling of an asset is considered a transaction event where you should know the rules on prohibited transaction.

In-Kind Transfer Completion Takes Coordination

For an in-kind transfer to be completed, it usually takes close coordination between several parties, including yourself, your previous IRA custodian, the issuer of the investment asset, and the one who handles the titling of investment.

In case one or several parties involved in the transaction are slow or hesitant to cooperate, the support team of Rocket Dollar will need to spend some time tracking down the deliverables.

These processes that are slower compared to moving traditional stocks, mutual funds, bonds, or retirement cash that have notably more established infrastructures for supporting the transfer in kind of traditional assets.

For your assets to be moved safely, these processes should be followed to avoid a prohibited transaction and respect the IRS regulation for a retirement account.

Should You Transfer In Kind or Liquidate the Money Into Cash?

You can have a direct transfer of holdings in your old IRA account to a new individual retirement account.

Transferring asset shares as opposed to selling and then transferring the cash proceeds of the sales of the assets is known as in-kind transfer.

The separate custodians of your old and new IRAs will have the final say when it comes to these transfers. The old custodian will determine what can be transferred out. The new custodian will determine the assets that can be accepted in kind.

For example, what cannot be transferred will include the proprietary mutual funds from the old IRA provider that are not part of the new fund family.

In-Kind Transfer Disadvantages

In-Kind Transfer Fees

You have to remember that all the costs that are associated with moving your account might include:

• termination fees
• closeout fees
• deferred sales loans that are owed on the holdings

It is common for the new provider to reimburse the closeout fees of the old account, but you will need to request this with your in-kind transfer.

In-Kind Transfer Loss of Possible Returns

Another possible disadvantage of liquidating your assets into cash before you transfer the account is holding cash as you wait for your new account to have the funds processed prior to the investment.

The loss will come from the higher return that is lost had the funds stayed invested. An investor will be able to avoid such risk by transferring the assets in kind instead.

More often than not, it is recommended to transfer everything in kind to guarantee the fastest and most efficient process of transfer.

Most of the time, when you liquidate the money into cash, you might lose track of several cost basis details on your non-registered accounts.

But if you choose to go for an in-kind transfer, your assets will be transferred, and the proceeds will be reinvested to your new account based on the asset allocation you chose, unless you indicated that you wish to keep some assets.

In-Kind Transfer Examples

A good example of an in-kind transfer is if you have 200 shares of stocks at ABS online brokerage.

However, you decided to work with CBN brokerage. You then request CBN to complete an in-kind transfer because you have no intention of selling your shares that might trigger some tax consequences in the non-tax sheltered account.

How to Do an In-Kind Transfer to 401k

In general, it is possible to transfer the assets you already own in an IRA in kind to a new IRA, such as a 401k.

These in-kind transfers typically require the two involved financial institutions to communicate and work with each other in order to guarantee that the whole process will go smoothly without any tax implications.

Similarly, it is also possible for you to receive transfers in kind from your 401k or any other type of employer-sponsored plan to an IRA.

The only common issue when it comes to an in-kind transfer may occur if the investments are exclusively offered at your old financial institution. This often happens with the in-house mutual funds of a brokerage company that it will never allow another broker to hold on your behalf.

As far as this kind of asset is concerned, you might be left with no choice but to sell the shares of the fund instead of having them transferred in kind.

However, with bonds, stocks, exchange-traded funds, and forms of mutual funds, it is possible for you to have an in-kind transfer done and completed.

An in-kind transfer to a 401k can be convenient, but the sad news is that this is not available all the time.

In the context of a rollover, an in-kind transfer might prevent you from having to undergo the selling of assets and rebuying them in a new account.

The Bottom Line with the In-Kind Transfers

An in-kind transfer offers some perks, but remember that it is not something that you should do haphazardly without careful thought and planning.

If you are no longer satisfied with your current firm, you are now familiar with how you can transfer in kind.

In-kind transfers are an easy and simple process that any individual investor can do.

But as always, it is recommended that you research and look into different firms to know if there are options out there that are better and more suitable for your specific situation.

Once you find one, you can proceed with the in-kind transfer of your account to the new firm.

After the transfer has been completed, you can continue to manage your with your newly chosen firm right there to guide you.