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cfdunton: When both pre-tax and after-tax contributions were used to purchase company stock in a 401(k), how is the stock handled when rolled to an IRA? It's my understanding that you can take stock as stock, pay ordinary income tax on what the stock cost and then when you later sell the stock pay capital gains on the profit.

What you are referring to is called Net Unrealized Appreciation (NUA). But this only works if you take possession of the company stock outside of any tax-deferred account. To use the NUA to your advantage, you cannot put that company stock in an IRA. Everything that goes into an IRA comes out only one way: taxable as ordinary income. Company stock rolled into an IRA forever loses the favorable NUA tax treatment.

Your 401(k) plan may allow you to take possession of your company stock in a taxable brokerage account while rolling the remaining 401(k) balance to an IRA. Only the shares purchased with pre-tax contributions would receive the NUA treatment. Shares purchased with after-tax contributions would be just normal shares, with no additional taxes owed until sold.

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