I quit my job with company stock in my 401(k). Now what?

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Following the conventional wisdom isn't always the best choice when it comes to rolling over a 401(k) with company stock.

Have you joined the Great Resignation? Yes? If you quit your job with company stock in your 401 account, you might wonder if you have a tax-smart option for the stock. You probably do. Here’s what you need to know.

If the shares have appreciated substantially while held in your retirement account, the cost basis could be a relatively small percentage of current value. That said, the cost basis will not necessarily be an insignificant amount. 2. Even better, the capital gains tax on the NUA is deferred until you actually sell the shares. The current maximum federal income tax rate on long-term capital gains is 20%, but most folks will pay “only” 15%. You may also owe the 3.8% federal net investment income tax and state income tax, depending on where you live.

Here’s an example You join the Great Resignation by quitting your job at age 40. Your company only offers a 401 plan. In a single transaction, you receive a lump-sum distribution from your 401 account that consists of $200,000 of cash and company stock with a current FMV of $100,000. The cost basis of the stock is $10,000. So, you have $90,000 of NUA .

 

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