Opening an investment account can help you grow wealth for retirement or other financial goals. Brokerage accounts can offer flexibility when it comes to choosing where to invest, and many online brokerages now offer low fees, a fact that can increase your incentive to build a portfolio. But what happens if you decide your current brokerage account is no longer what you need? The good news is you can move your investments from one brokerage to another easily and without tax penalties using an in kind transfer. For hands-on guidance in how to maneuver your investments, consider enlisting the help of a trusted financial advisor.
In Kind Transfer, Definition
An in kind transfer isn’t a complicated concept. It simply means that you move your assets from one brokerage account to another brokerage account as-is. There’s no selling off of assets or buying new ones. You’re essentially swapping out your current brokerage for a new one.
For example, say that you own 1,000 shares of ABC stock in your brokerage account. But you find that another brokerage offers better fees so you’re ready to make a move. With an in kind transfer, you could simply move those same shares to a new account.
This is different from an all in cash transfer. With that type of transaction, the assets in your current brokerage account would first have to be sold and converted to cash. Then that cash could be used to open a new brokerage account and purchase new investments.
Between the two, an in kind transfer may be the easiest way to set up a new brokerage account. But depending on the brokerage, you may have the option to do a partial in kind transfer of some assets while doing an in cash transfer of others.
What Types of Investments Can Be Transferred In Kind?
The answer to this question typically depends on the rules set by the brokerage you plan to transfer assets to. Generally, you can complete in kind transfers for individual and joint brokerage accounts, as well as individual retirement accounts (IRA) and custodial accounts held on behalf of minors.
In terms of the actual investments that can be transferred in kind, the list may include:
- Stocks
- Bonds
- Mutual market capital funds
- Exchange-traded funds (ETFs)
- Money market funds
- Certificates of deposit
- Options
- Unit investment trusts
The list of investments that may not be transferred in kind include:
- Annuities
- CDs held directly with a bank
- Commodities
- Life insurance policies
As you’re researching brokerages to open a new investment account, make sure to look at what assets you can move in kind and which ones you may need to sell first.
Benefits of Using In Kind Transfers
The most obvious advantage of using an in kind transfer to move assets from one brokerage to another is that it can be much easier than liquidating assets, then having to repurchase them. You’re just making an apples to apples trade, so there’s less heavy lifting involved.
In kind transfers can also protect you from price fluctuations caused by stock market volatility. For example, say you had to sell your 1,000 shares of XYZ company for $100 per share. But when you’re ready to reinvest in your new brokerage account, those shares are now selling for $120 each. The $100,000 in liquid cash you got from the sale would only buy you 833 shares of the same stock at the new price.
With an in kind transfer, your shares would be received at the new brokerage at their current market value. So even if prices change, you’re not forced to sell low and buy to maintain your position.
Using an in kind transfer can also make sense from a tax perspective. Selling assets for an in cash transfer could trigger capital gains tax if those assets appreciated in price while you held them. With in kind transfers, you can avoid these tax consequences since you’re just moving assets from one place to another.
Are There Any Downsides of In Kind Transfers?
In terms of drawbacks, it’s possible that your new brokerage could charge you a fee for making an in kind transfer. This could either be a flat fee or a percentage of the assets you’re moving.
Many of the bigger brokerages, like Vanguard, don’t charge a fee for in kind transfers but every company is different. So it’s important to check on both ends to make sure you won’t be charged a fee for moving assets from or to a new brokerage account.
Aside from that, you may also hit a snag if you have assets that can’t be transferred in kind. In that scenario, you’d have to decide whether you want to sell them and make an in cash transfer or keep them at your current brokerage.
How to Transfer a Brokerage Account
If you think changing up your brokerage account is the right move, the process for initiating an in kind transfer is fairly simple.
First, you’ll need to choose a new brokerage to move your account to. As you’re evaluating brokerage options, consider:
- Variety of investments offered
- Fees to invest
- Account minimum requirements
- Online and mobile account management tools
Once you’ve chosen a broker, the next step is opening your account. Most brokerages these days make it easy to open a new account online. Keep in mind that your new account type needs to be the same as your old account for an in kind transfer. So if you’re moving assets from a taxable account, they need to be going to a taxable account and an IRA to an IRA, etc.
Next, get your most recent account statement from your current brokerage. This has all the information your new brokerage will need to complete an in kind transfer, including your account number, balances and investment choices.
How you initiate an in kind transfer depends on the brokerage, but you may be able to do so through your online account. If you don’t see that option in your account menu, you can call the brokerage to see if it’s possible to start the transfer over the phone.
After you’ve given the brokerage the relevant information it needs to make the transfer, you just have to wait for it to be completed. This can take up to seven business days, depending on the brokerages involved so you may need to be patient. And once the transfer is complete, contact your old brokerage to make sure your account is closed.
Note that the specifics of the in-kind transfer can vary depending on the asset and the receiving firm. Follow the instructions provided by the receiving firm to ensure a smooth transfer.
Bottom Line
In kind transfers can be a simple way to switch things up where your investments are concerned. Many brokerages allow you to transfer assets in kind online so it’s relatively painless. If you’re not sure whether it makes sense to transfer investments, consider the fees you’re paying and how happy you are in general with your current brokerage. Then take time to compare other brokerage options to see what other choices you have.
Tips for Investing
- A financial advisor can help you decide when to move brokerages. If you don’t have an advisor yet, finding one doesn’t have to be complicated. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- IRA assets can also be moved from one brokerage to another using direct rollovers. This process can be more favorable than receiving the money and reinvesting it, since failing to do so in a timely manner could trigger a tax penalty. If you have IRA assets to roll over, consider going the direct route so you don’t risk having those funds treated as a taxable distribution.
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