UnThreaded | Threaded | Whole Thread (5) | Ignore Thread Prev Thread | Next Thread
Author: arrete Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 740211  
Subject: Company stock, redux Date: 1/20/2000 5:42 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
I've been lurking on this board and intercst's original board forever. In fact, intercst's Retire Early Home Page http://home.earthlink.net/~intercst/reindex.html was extremely helpful in prodding me into taking the final plunge. However, I must come out because there is a question that hasn't been answered.
Call me paranoid, but when you take possession of company stock in the prescribed manner under 72(t), and you pay income tax on the original cost of the stock, is the stock considered just plain stock after that? i.e. can it be "stepped up" at death like any other stock? Or is it "marked" in some way so that the heirs would have to pay capital gains from the purchase price (i.e., it would not be "stepped up" at death). It would certainly make a difference on which stocks we would spend during retirement.
You all are the best board around.

arrete
Stop before it's too late.<i/>
Print the post Back To Top
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: 2372 of 740211
Subject: Re: Company stock, redux Date: 1/20/2000 5:49 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Call me paranoid, but when you take possession of company stock in the prescribed manner under 72(t), and you pay income tax on the original cost of the stock, is the stock considered just plain stock after that?

Yup. Actually what happens is the entire balance in your plan comes out; company stock & everything else that is in the account as well. Since you are under age 59 1/2 when this happens; §72(t)(1) kicks in and assesses regular tax plus the 10% penalty (because no §72(t)(2) execeptions apply) on: your basis in the company stock and FMV on anything else that comes out with the stock.

Now, you do need to hold that company stock for a year in order to sell it at long term capital gains rates; max of 20%.

i.e. can it be "stepped up" at death like any other stock?

Yes.

Or is it "marked" in some way so that the heirs would have to pay capital gains from the purchase price (i.e., it would not be "stepped up" at death).

No marks that I am aware of.

It would certainly make a difference on which stocks we would spend during retirement.
You all are the best board around.

TheBadger



Print the post Back To Top
Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2373 of 740211
Subject: Re: Company stock, redux Date: 1/20/2000 6:25 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
TheBadger said:

<<Now, you do need to hold that company stock for a year in order to sell it at long term capital gains rates; max of 20%.>>

I disagree with that statement somewhat. The stock could actually be sold the next day and any unrecognized gain as of the date of distribution from the plan (i.e., the Net Unrealized Appreciation (NUA)) will be treated as a long-term capital gain. Any gain in addition to that of the NUA at distribution will be a long- or short-term gain based on the holding period which begins the day after the day the plan trustee delivered the shares to the transfer agent. (Proposed Reg 1.402(a)-1(b) and Revenue Ruling 74-398, 1974-2 CB 136)

Regards..Pixy

Print the post Back To Top
Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2375 of 740211
Subject: Re: Company stock, redux Date: 1/20/2000 7:12 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
TheBadger wrote,

arrete asks: can it [company stock] be "stepped up" at death like any other stock?

TheBadger answers: Yes.

arrete asks: Or is it "marked" in some way so that the heirs would have to pay capital gains from the purchase price (i.e., it would not be "stepped up" at death).

TheBadger answers:No marks that I am aware of.


I don't believe TheBadger is correct on this point.

Check out the excerpt below from the Retire Early's "Frequently Asked Questions on IRA Distributions Before Age 59 1/2.", see link,

http://home.earthlink.net/~intercst/wdrawfaq.html

"I've heard there are some unusual estate planning pitfalls with "company stock." What are they?

IRS Revenue Ruling #75-125 states that the "net unrealized appreciation" NUA (at time of distribution) is "income in respect to the decedent," and is subject to the long term capital gains tax to the heirs, just like any other pension benefit not yet taxed to the deceased.

That's why the August 16, 1999 issue of Fortune, Page 120, had this to say regarding company stock in a 401(k):

"One consideration: If you never sell those shares, your hiers wind up owing capital gains on the appreciation going all the way to thier value when they originally came into your possession. That's a lot more than they'll owe on the other stock they inherit, which is only taxed on the appreciation since your death. If you have a choice, then, sell your company stock to meet retirement expenses and leave other assets to the kids."


intercst



Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: arrete Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2376 of 740211
Subject: Re: Company stock, redux Date: 1/20/2000 7:26 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Thanks, intercst. Obviously, I didn't lurk deeply enough.

arrete
Stop, before it's too late

Print the post Back To Top
UnThreaded | Threaded | Whole Thread (5) | Ignore Thread Prev Thread | Next Thread
Advertisement