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Financial Planning / Foolish 401(k)s


Subject:  Re: 401K help! Date:  1/11/2013  7:33 PM
Author:  aj485 Number:  25001 of 25618

Cost basis is only really useful when accounting for capital gains. Capital gains are only meaningful when calculating taxes. In a tax-advantaged account, cost basis can be used to determine your total investment performance (capital gain or loss), but that really provides little useful value.

Sorry, but this is not completely true when it comes to 401(k) plans and employer profit sharing plans. These plans have a feature of being able to withdraw company stock with "Net Unrealized Appreciation" (NUA) and paying ordinary income tax (and any appropriate penalties) on only the basis of the stock. When the stock is sold, the profit over and above the basis will be taxed as a capital gain, rather than as ordinary income. At least for now, capital gains tax rates are generally lower than ordinary income rates, so this could result in fe