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Author: arnoldk Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121061  
Subject: Cash and the 401(K) Date: 1/5/2000 3:47 PM
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I'm probably breaking some tribal rule about posting the same question on two message boards, but this one's a toss-up (taxes or 401K), so I'm posting on both.

If there's a short-term need for cash (say, for a home purchase) and one's about to leave a 401(K) plan containing lots of appreciated company stock, is it a FOOLISH tax move to go ahead and take a distribution of the stock and then sell the stock to obtain the cash? Also - a NEWBIE follow-on question - if I go the stock distribution route, I presume I can still direct the non-stock value of my 401(K) into a traditional IRA. Yes? Thanks in advance for informed opinions!
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Author: TheBadger Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24447 of 121061
Subject: Re: Cash and the 401(K) Date: 1/5/2000 4:03 PM
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A great strategy that I am afraid fails on two counts:

1. By taking the appreciated stock (to avail oneself of the NUA feature) you would pay the tax plus the 10% surtax on the basis of the stock. Then, you need to hold the stock for one year to get the capital gains treatment; you can not sell it immediately; otherwise the gain will be treated as ordinary income. However, I suppose you could do all of this, hold the stock & margin the account to get the cash.

2. When using the NUA feature, the taxpayer must liquidate the entire 401(k) account and recognize the income on all of it; e.g. you can not recognize the stock & rollover other assets in the account.

Sorry,

TheBadger


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