Retirement Savings and Benefits
Questions and comments about IRAs, 401k accounts, social security, and other forms of retirement savings and benefits.
401k liquidation
Posted by: Win, September 25, 2017 03:58PM
I was born before 1936. I have a 401K with company stock and cash, all is pretax. I wish to get it in better shape for my estate. I recognize I should have acted long ago.

The company stock cost basis is reported at individual integer prices with about 15% with a basis above current fair market value. No distributions other than RMD's have been taken since retirement.

one suggestion I have received;
1. withdraw my 2017 RMD from the cash balance
2, sell the 15% that is above current FMV with the proceeds ending in the plan.
3. Transfer the remainder of the stock to a taxable brokerage account paying normal income tax rate on the cost basis.
4 Roll the cash balance remaining in the 401k to a Roth IRA. paying normal income tax rate on that balance.

Do this all in one year.

Does this process qualify for a lump sum distribution to preserve NUA?

Does this process qualify for the 20% cap gains treatment and 10 year tax option on form 4972?

If I skip the rolling to Roth and transfer all at one time to a taxable brokerage account it appears that I do qualify for the tax advantage but lose the future tax free growth and dividends for me and/or my heirs.

Comments please.


Re: 401k liquidation
Posted by: Alan S., September 26, 2017 07:22PM
First, if the FMV of the company shares is less than the cost basis (when shares purchased for your account), there is no NUA because there is no appreciation. However, that is somewhat immaterial in this case because you could not do a qualified lump sum distribution. That requires that there are no years following the year of the triggering event (retirement) in which there were distributions including RMDs, prior to the year of the lump sum distribution. In other words, there are no exemptions to these intervening distributions for being RMDs.


Re: 401k liquidation
Posted by: Alan S., September 28, 2017 02:10AM
As for the 10 year tax option or cap gains combined with the 10 year tax option, you would need to review Form 4972 [www.irs.gov] to be sure you qualify for it and also determine the tax bill you would pay. While the taxes due would likely be lower than your current marginal rate, it may not be enough lower to justify foregoing an IRA rollover or measured conversions to a Roth IRA.

Re: 401k liquidation
Posted by: Win, September 28, 2017 05:46PM
Thank you



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