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Hi Ceberon,

Depending on your circumstances, this may be a minor point, or it may be significant enough to make you change your mind. Only you can tell for sure. If your 401(k) contains stock in your employer, there is a rule known as NUA - Net Unrealized Appreciation - that may benefit you if you keep your money in your original company's 401(k).

In essence, when you're legally retirement elegible (age 55 if separating from the company, and I think - but don't quote me on this one - 59.5 if previously separated), if you withdraw highly appreciated employer stock from your company sponsored 401(k) as an in-kind lump-sum distribution, you can save considerably on taxes.

In a nutshell, if you paid $50,000 for the employer stock in the plan, and when you distribute it properly, if the stock is worth $200,000 , you'd pay income tax on your original cost basis ($50,000). The other money would not be taxed until you went to sell the stock. At that time, the difference between the basis ($50,000 in this example) and an amount up to the value at the time of distribution ($200,000 in this example) would be taxed as a long term capital gain. The difference between the distribution date value and the sales date value would be taxed as either a long term or a short term capital transaction, depending on when the shares are sold, with respect to the distribution.

Contrast that with the distribution taxation rules from a traditional IRA, where all the value would be taxed as income upon distribution.

The NUA rule only holds for employer stock held in certain qualified retirement plans sponsored by that particular employer. If you transfer the stock into an IRA or another employer's plan, you lose the NUA benefit. Whether or not that matters to you depends a lot on your specific situation.


-Chuck
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