Last week we discussed required minimum distributions (RMDs) in ESOP Planning: Distributions (3 of 4). I recently came across a Q&A that expands on some of the issues discussed. What value should be used to determine the number of shares to distribute? The value of the distribution is calculated using the fair market value of the stock as of the date of the distribution, and the value of the distribution must be at least equal to the amount required to be distributed to satisfy the RMD requirements:

The year-end fair market value (FMV) of an IRA is $40,000 (1,000 shares of stock valued at $40/share). We calculate the required minimum distribution (RMD) to be $2,000. The IRA owner chooses to take his RMD in stock rather than cash. The stock at the time of distribution is valued at $50/share. How many shares do we distribute–-50 shares (based on a value of $40/share) or 40 shares (based on a value of $50/share)?

IRA custodians/trustees report distributions on IRS Form 1099-R. The IRS Instructions for Forms 1099-R and 5498 tell payers to show the FMV of the property on the date of distribution. In this case, the custodian/trustee would distribute 40 shares, resulting in a distribution amount of $2,000 reported on Form 1099-R.