Retirement tax questions



When you distribute money from your IRA, you pay ordinary income taxes on those distributions (assuming your original contributions to the account were made with pre-tax dollars). Company stock rolled into the IRA is treated the same way.

But if you withdraw your company stock from your 401(k) and, instead of rolling it into an IRA, transfer it to a taxable brokerage account, you avoid ordinary income taxes on the stock's net unrealized appreciation (NUA) (regardless of whether you sell or continue to hold the stock). The NUA is the difference between the value of the company stock at the time it was purchased (and put into your 401(k) account) and the time of distribution (transferred out of the 401(k)). So the only part of your company stock that is subject to your ordinary income taxes is the value the stock was when it was first acquired by the 401(k) plan.

In sum, because of this NUA tax break, it may be most beneficial for you not to roll over your company stock from the 401(k) into an IRA. (However, the other assets in the 401(k) – such as mutual funds, etc. – do not receive the NUA tax break, so you would still likely want to roll these plan assets into an IRA and continue deferring taxes on past and future growth.)