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Subject:  Re: 401k rollovers of appreciated Stock Date:  4/25/2001  3:24 PM
Author:  TMFPixy Number:  6580 of 22894

Greetings, imalonghorn, and welcome. You wrote:

Question: Having reached the age of 65, my father is being forced to close his 401k from a company he worked at years ago, we have less than 30 days to determine the best course of action and I have been trying to crunch the numbers. Anyway, the 401k has both a cash portion and a stock portion, the stock has appreciated greatly in value since it was purchased, how do I calculate what the cost basis was on the stock, since it was purchased at prices over the years varying from 20 to 80?
He is planning to rollover the money to an IRA, but we also need to figure if it is better to pay the taxes on the appreciated stock now or roll that over as well.
I was able to follow the example in the 'managing your retirement --taking stock' article here but I need more detailed help


The basis for the company stock he holds in that plan should be furnished to you by the plan administrator. Unless your dad kept track of the information through the years, that will be your only source for that data.

Also, be aware there may be another option for your dad as opposed to putting anything in an IRA. If your dad receives a lump-sum distribution and was born before 1936, he may be able to elect an optional method of figuring the tax on the distribution. The part from active participation in the plan before 1974 may qualify as capital gain subject to a 20% tax rate. The part from participation after 1973 (and any part from participation before 1974 that he does not report as capital gain) is ordinary income. He may be able to use a 10-year income averaging tax option on the ordinary income part to lessen his overall income tax burden. A lump-sum distribution is the distribution or payment of all defined contribution plan balances (within a single tax year) he has with that employer (i.e., profit-sharing, ESOP, money purchase). See IRS Publication 575 (Pension and Annuity Income) for details. It's available at http://www.irs.ustreas.gov/forms_pubs/pubs.html.

Regards..Pixy

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