Feb 20, 2014 Don’t Destroy Your Rollover
When a person has company stock inside of their retirement plan that has significant appreciation, they need to understand the effect of Net Unrealized Appreciation. Simply put, Net Unrealized Appreciation, or NUA, is the difference between the basis, or what you paid for it, and the market value of those shares held in a tax deferred account. Net Unrealized Appreciation is really important because the gain inside of a tax deferred retirement plan like a 401k is not subject to ordinary income tax so when you leave your employer you need to think very carefully before rolling over the account. It may be better just to transfer those shares out in the form of certificates to an after tax account. That gain will not be taxed until those shares are sold. And if you hold those shares long enough they could be taxed at capital gains rates which are usually going to result in significantly lower taxes. There are additional considerations and pitfalls that you should consider before pursuing this strategy so we really recommend that you speak with a qualified advisor and tax preparer as soon as possible.
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