Net Unrealized Appreciation

[johnnym1987]

Anyone want to comment on having a client sell company shares from an employer sponsored 401K (walmart) then take those proceeds and roll them into a qualified annuity?

Her broker (ML) told her the full amount would be taxed as ordinary income (this year) plus she'd pay capital gains tax on the difference between the cost of the shares and the market value. He mentioned NUA tax strategy, which I researched, and it sounds to not be true.

She's over 59 1/2.

Thanks for the feedback,
John

 

[Mr. Bill]

Not sure what the question is, but NUA is an actual strategy which can be very beneficial to the client. Probably the biggest difficulty will be in determining the cost basis of the shares. If they've worked at WalMart for an extended period of time, and have a lot of newer shares, the math may not work. Regardless, if you use NUA, you would not be "rolling over" to a qualified annuity for many reasons but primarily because you would need cash to fund the annuity and you would not have cash.

 

[johnnym1987]

The question is - does she have to pay the income tax when she sells the shares and rolls the proceeds into another qualified account? I understand capital gains tax but income tax too?
John

 

[annuityseller]

ON an NUA SHE WOULD TAKE THE STOCK AND TRANSFER IT TO A N/Q BROKERAGRE ACCOUNT ,SHE'D PAY INCOME TAX ON THE COST BASIS OF THE STOCK ,THE CAPITAL GAINS QUESTION COMES IN WHEN SHE SELLS FROM THE N/Q ACCOUNT AT SOME FUTURE DATE!! i'M GOING FROM MEMORY WOULD HAVE TO CHECK MY ED SLOTT BOOK TO BE SURE!!

 

[johnnym1987]

"However, the selling of stock in her 401(k) will not create a taxable event, and the transfer of monies from one qualified account to another is not a taxable event."

Thank you, that's what I needed to know.

John.

 

[Mr. Bill]

"However, the selling of stock in her 401(k) will not create a taxable event, and the transfer of monies from one qualified account to another is not a taxable event."

Thank you, that's what I needed to know.

John.

The client will not have the opportunity for NUA if she sells the stock within the qualified plan (401(k)).

There are a lot of apples mixed up with oranges in this thread. Please be careful.

 

[insuranceexec]

The client will not have the opportunity for NUA if she sells the stock within the qualified plan (401(k)).

There are a lot of apples mixed up with oranges in this thread. Please be careful.

Isn't that the truth.

 

[padthaiforlunch]

Better keep your E&O paid up.

My guess is the client will listen to her broker and cut you out of the picture. If you want any chance at all, you need to learn about NUA's and run your own analysis.

Do what is right for the client.

 

[johnnym1987]

"keep your e&o paid up"

Thanks for the advice.

Client would rather pay taxes in ten years when she starts taking an income instead of paying ordinary income tax on cost basis and capital gains tax on NUA today, even though the money would not be taxable in the future.

I explained the benefits of both options and she wants to determine when the taxes will be paid, even though they may be higher in the future.

John

 

[Mr. Bill]

"keep your e&o paid up"

Thanks for the advice.

Client would rather pay taxes in ten years when she starts taking an income instead of paying ordinary income tax on cost basis and capital gains tax on NUA today, even though the money would not be taxable in the future.

I explained the benefits of both options and she wants to determine when the taxes will be paid, even though they may be higher in the future.

John

No offense, John, but based on this quote alone, you did not give the correct information to the client. We did try to be helpful, though.

Good luck to you.