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ESOP rollover at retirement
Old 03-25-2009, 10:22 AM   #1
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ESOP rollover at retirement

I know this has come up before, but I cannot find it.
What is the term for the process whereby one can take advantage of a low stock basis when rolling over an ESOP?
Specifically, I have several hundred shares of stock in an ESOP plan with a basis of $7 per share and a current value of $35 per share. I need to get out of the company stock when I retire next year and minimize the tax consequences.
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Old 03-25-2009, 10:26 AM   #2
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I believe the term you're looking for is "Net Unrealized Appreciation". Assuming you can withdraw from the 401K penalty-free, you could transfer the shares of company stock from the 401K into a taxable account -- paying ordinary income taxes on your original cost basis -- and then you can sell the company stock held for more than a year at favorable long-term capital gains rates. This is a good strategy but it needs to be done just right, because a mistake could be quite costly.
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
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Old 03-25-2009, 12:23 PM   #3
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You can research this over on the Fairmark Forum which is handled by a great bunch of CPA's. Considering the time of year that it is (April 15 fast approaching), you might just do some reading now.
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Old 03-25-2009, 04:44 PM   #4
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Could be wrong (and the rules could have changed anyway) but IIRC you need to withdraw your entire 401(k) at a single time to take advantage of this rule. In my case, I never considered it because the non-stock portion of my 401(k) would have been hard hit with regular income tax in a high bracket (for that year). YMMV
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