Net unrealized appreciation: Reason to liquidate 401k instead of rollover?

[free4now]

Just after I signed the papers to roll over my 401k into an IRA, I learned of another option: "Net Unrealized Appreciation" which is a tax strategy for liquidating a 401k without as much going to the IRS as you might think:

http://www.fpanet.org/journal/articles/2004_Issues/jfp0204-art7.cfm

It doesn't look like it is for me, because I didn't have employer stock in my 401k, had more losses than gains in my 401k, and don't need the money right now. But this seems like something everyone should be familiar with even if just to know it doesn't apply to you.

 

[New Thinking]

Everyone who has company stock in their DC plan should be familiar with it..You have to be careful about rebalancing during the accumulation stage..You also need to diversify enough so that all your eggs are not in one basket - especially when that basket is your employer's stock..If laws stay as they are today, I do think a smart planner could time withdrawals and pay very little if any taxes on their 401k stock..For example, you could take Roth distributions one year and withdraw some company stock and pay low capital gains taxes..

 

[Sarah in SC]

Hey, I've heard the guy who wrote that--John A. Nersesian--he's a wonderful speaker who came to our client meeting in April and spoke on behavioral finance. Very cool, and gave away a dozen copies of an excellent book Why Smart People Make Big Money Mistakes by Belsky and Gilovich. Nersesian is with Nuveen Investments (NWQ). Great guy, very interesting subject.
Sarah