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What are IRA Distributions?

The term distribution is used to indicate the withdrawal of cash and/or assets from an IRA. An IRA distribution can be taken at any time, though an early withdrawal penalty may apply if this is executed before the account holder reaches age 59.5 unless certain exceptions are met.  Please see IRS Publication 590-B for more details.

Most IRA holders are familiar with the concept of taking a cash distribution, but many are unaware that IRA distributions can actually be done ‘in-kind’ as well. 

With a cash distribution, an IRA account holder requests the IRAs cash (or a portion) be distributed from the account and sent via check, ACH or wire directly to the IRA account holder who takes personal possession of the cash.

With an in-kind distribution, an IRA account holder requests an IRAs asset be distributed from the account without actually selling the asset.  The account holder then takes personal ownership of that asset.  This can be especially useful if the IRA owns a more illiquid asset (e.g. real estate or private stock) and the account owner needs to take a distribution due to the Required Minimum Distribution rules.  The fair market value of the asset is used to calculate the equivalent dollar value of the distribution. The value of the in-kind distribution is reported in the same manner as a cash distribution and may be subject to income tax, early withdrawal penalties or both.

Please review the individual account distribution pages for more specific rules regarding the type of account(s) you may have.