In Kind Transfers: How They Work and When to Use Them

Estimated reading time: 3 minutesLast updated on: June 18, 2021

Opening a brokerage account and beginning to invest in assets can help individuals grow their wealth and save for retirement. According to information from the PEW Research Center, over 50 percent of U.S households are currently invested in the stock market. 

Brokerage accounts give individuals the ability to buy and sell securities on the financial markets. Investors will deposit money and instruct the broker on what assets to buy or sell. But, what happens when you want to transfer to a different brokerage? 

Selling your equity can get expensive with all the taxes and fees, luckily there’s another option – in kind transfers. Keep reading this guide to learn more about in kind transfers and when you should use one.

What Are In Kind Transfers?

When it comes to transferring assets, you have a few options, either you can sell your investments and transfer the remaining cash balance to a new brokerage, or you can use what is called an in kind transfer. 

Individuals will transfer to another brokerage for a number of reasons, including:

  • Lower fees
  • More variety
  • Minimum requirements
  • Better service 
  • Promotions

An in kind transfer doesn’t involve any selling – it’s simply just moving your investments from one brokerage to another. This is as opposed to doing a cash transfer, where you sell out of your positions and simply open a new account. However, selling out of investments can be costly with added taxes and fees.

How it Works

Transferring assets to another brokerage is a fairly straightforward process. It involves first selecting your new brokerage and opening a new account with them. Then, gather your account statement so you have all the information you will need at hand. 

Depending on the brokerage you ultimately decide to go with will determine how you proceed next. Most online brokerages have a fairly straightforward process for transferring your investments. Keep in mind it can take time for your funds to transfer over after you initiate it. 

Benefits

There are several reasons why investors would consider doing an in kind transfer rather than a cash transfer. The most significant benefit is not having to sell your assets and liquidate them. 

The problem is when you sell investments you’re subject to capital gains taxes and other fees that can take a percentage of the gains you have made, leaving you with less to invest when your funds are transferred over. Another reason investors take this route is that once you sell your initial investment, there is no guarantee you will be able to purchase it at that price again – you may have to pay more. 

For example, say you hold 100 shares of Apple with an average price of $100. You decide to switch brokerages and sell out of your positions. Between the time you sell your shares and open a new account, the price of Apple stock may already be $115, meaning you missed out on $15 per share.

Looking to Open a Brokerage Account?

It’s recommended to start saving for retirement as soon as possible. The more time you give for wealth to accumulate, the better results you will have. If you find yourself needing to transfer assets, remember in kind transfers can save you much needed time and money.

To learn more about how to get started investing with a self-directed IRA, schedule a 1-on-1 consultation with an IRA Specialist by clicking HERE.

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