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Has anyone come up with a general approach for when one should hold company stock at retirement and when one should role it over to an IRA? I know the tax implications of one versus the other, but I am trying to figure out which is the best approach.



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Greetings, NFgrappler, and welcome. You asked:

<<Has anyone come up with a general approach for when one should hold company stock at retirement and when one should role it over to an IRA? I know the tax implications of one versus the other, but I am trying to figure out which is the best approach.>>

See my article "Taking Stock" at http://www.fool.com/retirement/manageretirement/manageretirement4.htm for a general idea.

Regards..Pixy
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Thanks for the reply. I had already looked at your article, and found it to be among the clearer and better treatments of the topic. The example was particularly helpful!

I have no idea what my cost basis is for my shares of company stock, so I am unable for now to run the numbers for my own case. I was trying to figure out if I was ahead to take the stock at my upcoming retirement , pay ordinary income tax on the proceeds now, and pay capital gains when I sell it, or whether I should roll it into an IRA along with the rest of my 401k.
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<<Has anyone come up with a general approach for when one should hold company stock at retirement and when one
should role it over to an IRA? I know the tax implications of one versus the other, but I am trying to figure out which is
the best approach.>>

See my article "Taking Stock" at http://www.fool.com/retirement/manageretirement/manageretirement4.htm for a general
idea.

Regards..Pixy


Pixy; In your "taking stock" you do a good job. In short rolling over a LTCG to an IRA that will be taxed at ordinary income when distributed just doesn't make sense. However, why don't you even mention that in your best case scenerio of paying ordinary income tax of $2,800 and not rolling it over to an IRA that if the taxpayer was born before 1936 he could take it as a Lump Sum Distribution with 10 year averaging and pay only $1,100 of taxes instead of $2,800 on his $10,000? Check out Form 4972.

Further, if the taxpayer is the the FET brackets with no apouse, the cardinal rule should be DON'T DIE WITH AN IRA under any circumstances. Any cash-in tax you pay will effectively be between a 37% and a 55% after tax investment gain for your heirs. Ed
Ed
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Ed writes:

<<However, why don't you even mention that in your best case scenerio of paying ordinary income tax of $2,800 and not rolling it over to an IRA that if the taxpayer was born before 1936 he could take it as a Lump Sum Distribution with 10 year averaging and pay only $1,100 of taxes instead of $2,800 on his $10,000? Check out Form 4972. >>

That's a good point. Come the next revision, I'll do that.

<<Further, if the taxpayer is the the FET brackets with no apouse, the cardinal rule should be DON'T DIE WITH AN IRA under any circumstances. Any cash-in tax you pay will effectively be between a 37% and a 55% after tax investment gain for your heirs.>>

Also a statement with which I agree totally.

Regards..Pixy

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<<I have no idea what my cost basis is for my shares of company stock, so I am unable for now to run the numbers for my own case. I was trying to figure out if I was ahead to take the stock at my upcoming retirement , pay ordinary income tax on the proceeds now, and pay capital gains when I sell it, or whether I should roll it into an IRA along with the rest of my 401k.>>

Contact your company's retirement department and they should be able to give you a cost basis figure even before you actually retire. At least mine did. And that sure makes it easier to make your decision
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Don't forget that there is an IRD deduction for one dying with an IRA in a taxable estate. Far too many people miss the fact that Income in Respect of a Decedent will generate a deduction based on the estate tax paid. It does soften the blow of having the estate get hit with FET and then the IRA being fully subject to income tax.

Although this might be better over on the Inheritance board, those people fortunate enough to be facing a taxable estate should consider cashing in the IRA and simply paying the income tax since the income tax paid is no longer part of the estate. Yes, I know that you are giving up the prospect of further deferrals but my experience is that the next generation doesn't wait very long before cashing in anyway. For the truly fortunate, and not too old or too infirm, why not cash in the IRA and use some of the proceeds to fund an irrevocable insurance trust in favor of the heirs. The income tax is paid (couldn't avoid that) and the life insurance proceeds from the trust are not subject to either FET or income tax.
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