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Do You Own Company Stock in Your Retirement Plan? | By Nick J. Valenti, CLU, ChFC, CFP® Thumbnail

Do You Own Company Stock in Your Retirement Plan? | By Nick J. Valenti, CLU, ChFC, CFP®

By Nick J. Valenti, CLU, ChFC, CFP® - President & CEO

In addition to doing a rollover of all assets in your retirement plan to an IRA you should know that you have an alternative for your employers’ stock which is held in that plan. This alternative may provide you with a tax advantage.

People approaching retirement often have sizable 401(k) plans and other employer-sponsored plans. Many of these accounts include company stock that has appreciated over the years. If you are in this situation, you should know about special tax advantages applied to any Net Unrealized Appreciation on the company stock (referred to as the NUA strategy) that may help you to reduce taxes and avoid early withdrawal penalties on those assets. Of course, you should consider consulting a tax advisor to ensure that NUA is appropriate for your situation.

Under the NUA rules, you can elect to defer taxes on the NUA until the time you choose to liquidate the stock. Regardless of how soon you sell the stock after it is received it in kind, the NUA should be taxable as long-term capital gains. NUA and any additional appreciation realized after the distribution in kind should not be subject to the 10% early withdrawal penalty, regardless of your age. The additional appreciation, however, should be taxable as short-term or long-term gains, depending on how long you have held the stock after it was distributed in kind from the plan.

When utilizing the NUA strategy, you must take a lump-sum distribution of all the assets in your employer-sponsored retirement plan account. The employer stock is distributed in kind and is usually moved to a brokerage account. The rest of the assets may be rolled over to an IRA.

It may be helpful to know that you may be able to take a distribution of the retirement plan assets prior to retirement, this is known as an in-service distribution, which is usually available at age 591/2.

I am happy to be a resource for anyone who may have questions.

About the Author:

Nick Valenti is the President and CEO of Platinum Wealth Solutions of Texas, LLC and Michigan Financial Companies. As a 40-year veteran of the insurance and financial services industry, he has had the pleasure of seeing clients through their most important milestones in life - assisting them into and through retirement.

The firm's mission is to impact the lives, lifestyles, and legacies of its clients and associates. With an intense focus on providing value and believing that “a rising tide raises all ships,” the experienced team at Michigan Financial Companies/Platinum Wealth Solutions brings a passion for serving clients and associates to everything they do, with the highest ethical standards, energy, and supportive work environment.

If you're interested in meeting with Nick and his team, he can be reached at 210-998-5032 or nvalenti@michiganfinancial.com.

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