cost basis of shares transferred in kind from IRA

[dcunitedfan]

Say I have shares in a company in my traditional IRA (for example sake, originally purchased in the IRA at $10/share).  At some point when the shares are worth say $12/share, I then transfer them in kind to either:

a) a taxable brokerage account
b) a Roth IRA (a Roth conversion)

The tax due from the in-kind distribution is paid from some available cash source....I hold onto the shares for a period of time following the conversion (in the case of the Roth IRA conversion, assume that it's 5 years to avoid the 10% penalty), and ultimately sell at $13/share.  Also assume that the time period between conversion and sale is > 1 year to make it LT CG.

To calculate the capital gains on the sale, is the cost basis for the shares the original $10 purchase price, or the $12 at the time of in-kind transfer?

[MDM]

Say I have shares in a company in my traditional IRA (for example sake, originally purchased in the IRA at $10/share).  At some point when the shares are worth say $12/share, I then transfer them in kind to either:

a) a taxable brokerage account
b) a Roth IRA (a Roth conversion)

The tax due from the in-kind distribution is paid from some available cash source....I hold onto the shares for a period of time following the conversion (in the case of the Roth IRA conversion, assume that it's 5 years to avoid the 10% penalty), and ultimately sell at $13/share.  Also assume that the time period between conversion and sale is > 1 year to make it LT CG.

To calculate the capital gains on the sale, is the cost basis for the shares the original $10 purchase price, or the $12 at the time of in-kind transfer?

You pay tax at ordinary income rates when you take pre-tax money out of a tIRA.  Capital gains or losses are irrelevant.  At that point your money is "after tax", so if you buy shares in a taxable account, your basis in the taxable account is the cost of the shares when you buy (not bought back in the tIRA) them.  After that, normal capital gains treatment applies.

If you take your tIRA money and put that into a Roth, you pay taxes at ordinary income rates at that time.  One the money is in a Roth, again capital gains are irrelevant - all that matters is "contributions vs. earnings".

[dcunitedfan]

OK well I see now that I really didn't have to ask about the rIRA option.  But I'm still wondering about the tIRA-to-taxable case.  If I transfer shares in kind, they aren't really being sold at the time of transfer, just relocated to a taxable account (albeit coming along with a tax bill for the conversion).  So when if I ultimately sell them, would the basis come from the original purchase price (back in the IRA) or the price at the time of conversion? 

[MDM]

... would the basis come from the original purchase price (back in the IRA) or the price at the time of conversion?

The price at the time of conversion.  You will have paid tax on the full value of the conversion, so that becomes your basis for further action.