Withdrawing Bonds From an Inherited IRA

[taxamedmed]

I have an inherited IRA with a number of bonds of varying maturities in it. 
I understand that I can move the bonds to my main account and that would

be a form withdrawal from the inherited IRA. What is the amount I declare 

on my taxes when I move the bond to my main account? 

For example, there is a bond that shows a cost basis of $20,232.38 and

a current market value of $17,800.00 and a face value of $20,000 

when it matures in 2029. I understand I have have to pay income
tax on this inherited IRA withdrawal. Is the withdrawal $17,800
the current market value? Of the $20,000 it will eventually be
worth in 2029?

[NCperson · Accepted solution]

@taxamedmed - the taxable withdrawal from the traditional IRA is based on the market value of what you transfered, using the market value on the day of the transfer.

then that number creates the cost basis. 

Inside a traditional IRA 'cost basis" of individual holdings has no meaning for tax purposes.  It's the tax basis of the entire IRA that matters.  In most cases, that tax basis is zero. 

in your example, assuming the tax basis of the Traditional IRA is zero, if the bond are worth $17,800 at the close of trading on the day you withdrawl it from the Traditional IRA, you will owe ordinary income tax on the entire $17,800.   You'll have to come up with that cash to pay the taxes from another source.

When you eventually sell the bonds, the capital gain or loss is measured against the cost basis. in this example that cost basis would indeed be the $17,800.  if you hold to maturity, the capital gain will be $2,200.

[Bsch4477]

The taxable value of the in-kind distribution is determined by the current fair market value of the investment holdings that are being taken in-kind.