401(k) Distribution
Rollover, Pay Tax or NUA?
When its time to retire or leave your current employer 401k distribution:
- you can rollover the balance to an IRA
- you can pay tax today or
- you can exercise the NUA rules if they apply
Rollover
If you are retiring from your current job and want to see your 401k distribution continue to grow tax sheltered, place the distribution in an IRA. The best way to handle this is you have the plan administrator at your company send the 401k distribution directly to your IRA custodian. This will eliminate the requirement for any withholding tax, mistakes or complications.
Pay the Tax
This is the worst alternative and would only apply if you need to spend your 401k distribution, if for example, you plan to buy a yacht and sale the seven seas.
Net Unrealized Appreciation (NUA)
One important point to remember for those who have employer stock in their 401k plans is the NUA (net unrealized appreciation) rule, which allows you to sell your employer stock in a separate transaction that could be taxed largely as a capital gain instead of ordinary income. If you plan on selling the employer stock separately, be certain not to include it when you roll over the balance to your IRA. You will separate your 401k distribution into employer stock and the other assets to be rolled over.
[...] same investment as a 401k investment, we may eventually pay as much as 35% tax when we maker our 401k distribution [...]
[...] you transfer your stock to a regular brokerage account you would also rollover the balance of your 401k distribution to an IRA. That way those funds will continue to grow tax-deferred, eliminating any 401k tax for [...]
[...] difference between the stock?s current market value and your tax basis in them is the ?net unrealized appreciation? (NUA) ($200,000 - $20,000). This NUA is the gain you?ll have in the event you sold the stock [...]