"NUA allows you to take a lump-sum distribution of employer stock from a 401(k) and pay ordinary income tax only on the original cost basis, not on the current market value."
"For someone in the 37% tax bracket, rolling the stock into a traditional IRA means $129,500 in federal tax on the $350,000 position when withdrawn."
"Taking the NUA distribution results in only the $70,000 basis being taxed as ordinary income, generating $25,900 in federal tax, while the remaining appreciation is taxed at long-term capital gains rates."
"The tax savings on the $280,000 spread are approximately $47,600 at the federal level alone, easily clearing $50,000 when state taxes are factored in."
A 58-year-old with $1.2 million in a 401(k) must decide between rolling it into a traditional IRA or utilizing the Net Unrealized Appreciation (NUA) strategy. NUA allows for a lump-sum distribution of employer stock, taxing only the original cost basis as ordinary income. For example, a $350,000 stock with a $70,000 basis results in $81,900 in total federal tax using NUA, compared to $129,500 if rolled into an IRA. This decision can save approximately $47,600 in federal taxes, highlighting the importance of understanding tax implications before retirement.
Read at 24/7 Wall St.
Unable to calculate read time
Collection
[
|
...
]