what is an in-kind distribution

What is an In-Kind Distribution?

In-kind distributions can sometimes provide tax or other benefits that a cash distribution doesn’t. So what is an in-kind distribution? Any distribution NOT made in cash. For a retirement account, that would typically be a distribution of stocks, bonds, mutual funds, or ETFs. In the case of an inheritance that would mean you would receive the property or investments directly, instead of cash after they are sold.

Why Take In-Kind Distributions?

There are some cases when taking an in-kind distribution will result in a more favorable tax treatment than taking the distribution in cash. Other times, a distribution in-kind makes sense because you simply want to keep the investments. If you plan to continue to own them it’s just simpler if you can avoid selling and then repurchasing them.

Here are a few examples of when an in-kind distribution makes sense…

Net Unrealized Appreciation

If you hold shares of your employers stock in a qualified retirement plan, distributing those in-kind allows you take advantage of any net unrealized appreciation. Net unrealized appreciation is the gain you’ve made on your company’s stock while it’s been in your retirement account. 

The IRS treats appreciated company stock held in a retirement plan very favorably. 

Normally, distributions from tax-deferred retirement accounts are taxed as ordinary income. Not the case with appreciated company stock when it distributed in-kind. In that situation your income tax rate only applies to the amount you paid for the stock. Any gains that you have made are taxed at the lower capital gains tax rates.

For example. Assume you bought a share of your employer’s stock for $50 and it is now worth $90. If you sell that stock and withdraw $90 in cash then you will owe income tax on $90.

Suppose instead that you withdraw that share in-kind. You will be taxed on $50 at your income tax rate, but the remaining $40 will be taxed as a capital gain.

Be careful with this. In order to take advantage of this rule you must distribute the share in-kind, and you must distribute the share to a taxable account. If you sell the share before you withdraw it, or roll it into another tax-advantaged account, you will lose the benefit.


Your required minimum distributions can also be in-kind. When you calculate your RMD, that is simply the value you must withdraw for the year. That value doesn’t have to be in cash. You can withdraw securities valued at whatever dollar amount you have to take. 

But why would you?

If you actually need your RMD and plan to spend the distribution then you may as well just withdraw the value as cash. However, many retirees often wish they could leave their money in savings. 

By taking your RMD in-kind you can roll those investments into a taxable account. That way, you won’t need to worry about selecting new investments or missing out on any market gains.

However, realize that you will still owe income tax on the value of the distribution. If you don’t have the cash available to pay it, you’ll still need to sell a portion of the distributed investments to raise the cash. The benefit here is that you won’t have to sell all of it. 


To make a distribution in-kind, first decide where you want to send the investments. If you don’t already have one, you’ll need to open an account to send them to. This could be an IRA or taxable account depending on what you want to do and the reason for taking the distribution.

Next, begin the transfer process. When you fill out the forms there will be a section that asks how you want the transfer, rollover, or withdrawal to happen. 

You can either take the entire account value in-kind, or specify which investments you want to distribute in-kind. You can take some in cash and some in-kind as well.

Share this post