UnThreaded | Threaded | Whole Thread (11) | Ignore Thread Prev | Next
Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 74759  
Subject: Re: Removing Stock from 401K Date: 1/21/2000 3:58 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Telone writes:

<<Pixy: thx for shedding some more light on this issue. I have about $200,000 in company stock at a cost basis of about $78,000 in my 401K with a total of about $525,000. I am 65 and have retired from the company. The 401K still is in the hands of the company but managed for them by Fidelity. I have not rolled the 401K to a self-directed IRA yet. Question: What exactly is the procedure for "removing" or extricating the stock portion ($200,000) from the total 401K (balance of $300,000 is in Fidelity mutual funds) before rolling over the $300,000 into a self-directed IRA.>>

To get the shares, you ask for them to be sent to you when the account is liquidated. The company will send you only whole shares. Partial shares will be redeemed for cash and should move to an IRA with the other assets. Also, be aware that some plans might not let you have them. Instead, the company will redeem them at market. That's up to the plan.

<<Is this procedure always the best thing to do or are there any downsides?>>

Always is too strong a word. There are always some downsides. For instance, that $78K will put you into a higher bracket most likely, which means a bigger bill. That's why it's necessary to run some numbers before making the choice.

<<Do I understand that once the stock portion is removed form the 401K that I would have to pay ordinary taxes on the $78,000, then capital gains (20%) on any future stock sales?>>

Yes, that's correct.

<< On future stock sales, what would be the cost basis for the gains?>>

That gets hairy. The Net Unrealized Appreciation (NUA) will always be taxed as long-term gains. Any additional gain above that gets taxed at long or short-term rates based on your holding period after they were distributed. So your basis is what you paid income taxes on at distribution. Your total gain would be your Selling Price less Basis. From total gain, subtract NUA to get the future gain. The latter then gets taxed based on your holding period while the NUA gets taxed at long term rates.

Regards..Pixy
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (11) | Ignore Thread Prev | Next

Announcements

The Retire Early Home Page
Discussion on accelerating retirement day.
2013 Feste Award Voting Begins!
Who will win the 2013 Feste Award? Vote now for the Fool that most exemplifies the Fool Community mission of Learning Together!
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Post of the Day:
Tax Strategies

TMFPMarti-Feeling Good
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement