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Author: zebfool One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121061  
Subject: Basis of stock Date: 1/18/1999 2:50 PM
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Here is a question that I just read about and would like to understand better.

I am a participant in a 401(k) plan. Part of what I invest in is stock of my employer. For this discussion we will use the following:

I have 100 shares of stock.
I paid $5.00 per share for those 100 shares.
The value per share at the time of my retirement is $25.00

Now for the questions

If I roll the 401(k) money over into an IRA will all of value of the 401(k) be taxed as ordinary income?

If I take the stock out as stock when I retire and do not put it into an IRA what would my basis then be in the stock and how much would I pay taxes on? Would it be taxed at ordinary or Capital gains (short or long term as appropriate) rates?

If I leave it in the 401(k) and the value goes up to $45.00 and I die how is it taxed (ordinary, long term, etc.)?

Hope I stated this clearly. Thanks for all your help

Zeb and Hildegarde
(Out in the country)
(Right next door to the Ziffles)
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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8548 of 121061
Subject: Re: Basis of stock Date: 1/18/1999 9:01 PM
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[[ Here is a question that I just read about and would like to understand better.]]

OK...

[[ I am a participant in a 401(k) plan. Part of what I invest in is stock of my
employer. For this discussion we will use the following:

I have 100 shares of stock.
I paid $5.00 per share for those 100 shares.
The value per share at the time of my retirement is $25.00]]

OK...

[[Now for the questions

If I roll the 401(k) money over into an IRA will all of value of the 401(k) be
taxed as ordinary income?]]

Not sure what you are asking. If you take your 401k funds and roll them over to a regular IRA, and distributions that you eventually take from the regular IRA will be taxed as ordinary income.

[[ If I take the stock out as stock when I retire and do not put it into an IRA what
would my basis then be in the stock and how much would I pay taxes on?]]

It is very possible that you could receive the long term capital gain treatment on the unrealized appreciation on the securities...assuming that this is one of your options in taking your distribution. Your best bet on this would be to review the employee handbook information regarding your 401k plan.

The only problem with this is that you'll have to take the entire amount out at once, and in the form of shares. Many people don't want to take that kind of a tax "hit" all at once...even at capital gains rates.

But again, check the plan summary with respect to your 401k. You should find a discussion on this very issue.

TMF Taxes
Roy

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