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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 74853  
Subject: Re: Removing Stock from 401K Date: 1/20/2000 10:21 AM
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BGP writes:


<<Can stock in a 401K be rolled-over to an IRA if you're not 55 when you leave the company and then make the same cost basis transfer procedure happen at 59 1/2 with the 10% penalty?>>

The stock may be transferred to the IRA to avoid the early withdrawal penalty; however, once the shares are there, they fall under IRA rules pertaining to distributions. That means if distributed as shares, the distribution will be at full market value at that time with taxation at ordinary rates at full market value as well. Once in the IRA, the shares lose any capital gains rate advantage.

<<Also if service is terminated prior to 55, just leaving the stock in the old firm's 401K, if permitted to do so, still does not permit it's removal at 55 without penalty. Is that correct?>>

That is correct.

<<But could a person leave the stock in the old 401K until 59 1/2 and then pull it out, taxing it on the cost basis?>>

For the shares to be distributed to you for taxation at their basis, you must have a lump sum distribution of all the 401k proceeds. Therefore, as long as you leave the entire balance in the plan, then you could wait until age 59 1/2 to take the lump sum, keep the stock, and roll the rest to an IRA.

<<Are there any regulations that require the 401K administrator to keep "accurate" records on the cost basis of the shares?>>

I'm not sure about the historical record. But someone somewhere had to keep a record at least in the year of purchase. I'd start with your current custodian and work backwards from there to prior custodians. Yes, that will be an administrative headache, but without the record of the cost you'll have a tough time proving your basis. The current administrator may even be able to track the history of your account. All you can do is ask.

Regards..Pixy
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