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Buznitz writes:

<<We all need to read IRS Publication 575 page 20,21,22.
The rules are convoluted. Transfer to an IRA is NOT a lump sum distribution. Unless one withdraws entire 401K one cannot defer the LTCG of the stock portions NUA. If stock is transferred to an IRA you lose the LTCG advantage even though you defer taxes until you sell stock(but it becomes ordinary income). I thought about taking a lump sum from ALL of my employer's 401K account and doing long term averaging without including the stock portion NUA(only paying taxes on the cost basis of the stock and deferring LTCG until the stock is sold). The tax bite using 5 or 10 year averaging was too large for me to swallow. Either way the tax man cometh.


Yes, that's absolutely true. You want to pay taxes up front in one year on the entire lump sum. In that case, you can't use the capital gains advantage of taking company shares. Paying the income taxes immediately on retirement plan lump sums rarely makes sense even when one can use long-term income averaging. There are rare exceptions to this, but not many. Generally, normally, usually, invariably, it's best to transfer most of the proceeds to an IRA and only keep (and pay taxes on) part of the distribution. Do so with company shares, and you get the added benefit of being able to use long-term capital gains rates on the NUA even if sold immediately after receiving them.

Regards..Pixy
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