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<<I inhereited a 401k account from my Dad that is all company stock and contains only a small after tax contribution. I have 5 years to dispose of the account. >>

Well, you may have many more options that that. Check out my article on IRA beneficiaries for some additional information. You'll find it in the Taxes FAQ area. It doesn't completely apply to you, because the article is written for IRA accounts, and you're receiving a 401k. So the rules are a bit different.

Then go to the 401k administrator and get the rules applicable to your specific situation before you make your final decisions.

<<I understand that all payouts are considered long term capital gain. Does the capital gain rate depend on your other income tax rate or is only taxed at 10% ?>>

Again, the taxes will be dependent on how the funds are removed. In order to get the capital gains treatment, the balance must be taken in the form of a lump sum distribution. So you'll need to make sure that you have ALL of the facts down before you take any distributions and potentially trip yourself up. You might want to check IRS Form 4972 and the associated instructions. You might also want to read TMF Pixy's article on taking 401k funds in the form of company stock and retaining the capital gains component. You'll find his article in the Retirement section of the personal finance area.

But if these funds are substantial, you might want some professional help in making your decision. A bad decision or destribution could cost you many tax dollars.

As to your original question, your capital gain rate will be based upon this income and your other income. You'll "fill up" your 10% bracket area and will then move to the 20% bracket level as your income rises. There are also articles in the Taxes FAQ area which discuss this issue in more depth.

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