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TMFPixy: "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."

Pixy, I want to rephrase and re-ask this question to be absolutely certain that I understand the issue.

The only way to take advantage of NUA of company stock is to take a complete distribution of the enitrety of the 401-k. Income tax on stock would be on its basis. Income tax on balance of plan would be at marginal tax rate; income tax on balance of plan could be postponed by rollover into a new (or another) regular IRA. Once balance is in an IRA usual rules for transfer to Roth IRA would apply.

In addition, the only ways to avoid the 10% penalty are either (i) to be retiring, or have retired, from the company in the calendar year in which one turns 55, or (ii) if one left the company long before 55, wait until after reaching 59 1/2 to receive distribution.

WRT to the company stock, the date of distribution serves as the start of a new holding periof for measuring STCG v. LTCG, so company stock would need to be held for one year after distribution and then subsequently sold in order to receive LTCG treatment.

Sorry for the mouthful, but did I recite that correctly? Or am I misunderstanding something?

Thanks, JAFO

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