Net Unrealized Appreciation

[johnnym1987]

I certainly appreciate the help, no offense taken. I posted this to learn and the feedback has been great!

If it's not right for the customer, I certainly won't go forward.

I want to make sure I am clear on this so I can explain her options accurately.

I am meeting with a CPA on Monday before I proceed.

Happy New Year to All,

John

 

[0b1kanobee]

I'm dealing with the same situation. I have a client who has about 300k in one companies stock that she aquired through working there and buying because she worked there. You can only buy stock or get stock if you work at the company.

It has a 15% average return since 1959 but all her eggs are in one basket as I have told her and the possibility of that return sustained is well rather risky not to mention all her monies are there.

She's wondering what the tax implications would be to do say 100k in an annuity with income for life rider. She is only 45. Retired from that job and now working for the government.

She is single, no kids and my avenue even if she doesn't want to move monies it is possibly long term care. I'm leaning that way anyway and she raised her eyebrows and said she had not considered that but now I definitely have her interest peeked. I'm concerned for her future with no one to care for her as she doesn't plan on marriage or boyfriend, family, ect. ect. The state would go through those monies quickly or she would as she is all exposed if she ever needed LTC.

I was wondering about a 1035 exchange but I may be way off. We have a CPA at the firm but I haven't asked him yet.

Any more information guys/gals?????

I found this article:
http://www.stock-market-investors.com/stock-tax-issues/stock-tax-implications.html

 

[GNSBRG]

Nobody has mentioned after-tax contributions. Was any of the stock purchased that way? if so, I found this info:
After-tax contributions are quite different from pre-tax contributions. If an employee elects to make after-tax contributions, the money comes out of net pay (i.e., after taxes have been deducted). While it doesn't help the employee's current tax situation, funds that were contributed on an after-tax basis may be easier to withdraw since they are not subject to the strict IRS rules which apply to pre-tax contributions. When distributions are begun (see below), the employee pays no tax on the portion of the distribution attributed to after-tax contributions, but does have to pay tax on any gains.

If you have access to a CPA in your firm I'd ask them first!
- - - - - - - - - - - - - - - - - -
here's the link:
Stock Tax Implications

 

[HarryRenard]

Nobody has mentioned after-tax contributions. Was any of the stock purchased that way? if so, I found this info:
After-tax contributions are quite different from pre-tax contributions. If an employee elects to make after-tax contributions, the money comes out of net pay (i.e., after taxes have been deducted). While it doesn't help the employee's current tax situation, funds that were contributed on an after-tax basis may be easier to withdraw since they are not subject to the strict IRS rules which apply to pre-tax contributions. When distributions are begun (see below), the employee pays no tax on the portion of the distribution attributed to after-tax contributions, but does have to pay tax on any gains.

If you have access to a CPA in your firm I'd ask them first!
- - - - - - - - - - - - - - - - - -
here's the link:
Stock Tax Implications

I dont even know where to start, But first is this stock in a brokerage account? where is it held.

These cases can be tax nightmares if not handled "properly".
And no offense but "properly" doesnt mean posting a Q&A on the ins forum.

I would def consult a cpa and possibly even a broker if you know and trust one.

 

[scagnt83]

I'm dealing with the same situation. I have a client who has about 300k in one companies stock that she aquired through working there and buying because she worked there. You can only buy stock or get stock if you work at the company.

It has a 15% average return since 1959 but all her eggs are in one basket as I have told her and the possibility of that return sustained is well rather risky not to mention all her monies are there.

She's wondering what the tax implications would be to do say 100k in an annuity with income for life rider. She is only 45. Retired from that job and now working for the government.

She is single, no kids and my avenue even if she doesn't want to move monies it is possibly long term care. I'm leaning that way anyway and she raised her eyebrows and said she had not considered that but now I definitely have her interest peeked. I'm concerned for her future with no one to care for her as she doesn't plan on marriage or boyfriend, family, ect. ect. The state would go through those monies quickly or she would as she is all exposed if she ever needed LTC.

I was wondering about a 1035 exchange but I may be way off. We have a CPA at the firm but I haven't asked him yet.

Any more information guys/gals?????

Where is the money held? Qualified or non-qualified? You are certainly correct about her need for diversification if this is all she has. Its probably company stock inside of a 401K, but it just depends.

You cant 1035 securities into LTC..... you could use income from a SPIA or interest/withdrawals from a FA to fund LTC....
But if this is all of her savings you could only use a portion of it to do so.
And if its qualified money this is not an option at all considering her age.

One option depending on what kind of money it is, is a lump sum LTC product using a portion of it (like 5-10%).
There are combo ltc/life lump sum products out there that will grow her money at a guaranteed 3% or so & give her a nice ltc benefit on down the road.
But you cant use qualified money in these i dont think.

 

[GNSBRG]

GILICO has an LTC annuity where you can use Q money.
The original question said the money was in a 401(k).
The question to ask is what stock was purchased with after tax dollars.
I think you need a professional opinion or two. I would ask a CPA who knows stuff.

 

[scagnt83]

GILICO has an LTC annuity where you can use Q money.
The original question said the money was in a 401(k).
The question to ask is what stock was purchased with after tax dollars.
I think you need a professional opinion or two. I would ask a CPA who knows stuff.

Im not sure if your response was for my post or not.
I was responding to ob1kanobee's question, not to the original one posted by johnnym1987, ob1 never stated where the money was at.


Have you used the LTC annuity from GILICO before? Did you put qualified $ into it? Is it full LTC underwriting?

The structure of that is not the same as the lump sum ltc products I spoke of. Not that it is bad, just different.

GILICO is bundling a FA and a LTC policy under one umbrella. Internally, the FA uses withdrawals to fund the LTC. Something that I have done many times just unbundled. This is why you can use qualified $ to fund it, because the $ does not go directly into a LTC policy.

The problem with this product and qualified $ is that you have to worry about the 59 1/2 rule, and you have to pay income taxes on the withdrawals/premiums for the LTC. Plus there is no enhanced DB with the annuity like there is with the lump sum GUL/LTC platform.

Its definitely an interesting product though

 

[padthaiforlunch]

Since we're on the topic of annuity/ltc combos.... For annuities funded with after-tax monies...

Part of the PPA went into effect this month:

Beginning January 1, 2010, cash value withdrawals from specific annuity contracts to pay for qualifying long-term care expenses or to pay qualified long-term care insurance premiums, will no longer be taxable income but considered as a reduction of cost basis. Benefit payments from long-term care insurance riders will also not be taxable.

The Pension Protection Act allows annuity contracts to include long-term care coverage and under new Code Section 7702B(e)(1), such coverage will be treated for tax purposes as a separate contract. By separating the annuity and LTC portions of the contract, it has become possible for the long-term care coverage to be qualified under section 7702B as set forth by HIPAA.

Under new Code Section 72(e)(11), premium charges associated with long-term care coverage that are distributed from the cash value of an annuity contract will not be treated as taxable distribution, but as a non-taxable reduction of cost basis.

 

[scagnt83]

Since we're on the topic of annuity/ltc combos.... For annuities funded with after-tax monies...

Part of the PPA went into effect this month:

Beginning January 1, 2010, cash value withdrawals from specific annuity contracts to pay for qualifying long-term care expenses or to pay qualified long-term care insurance premiums, will no longer be taxable income but considered as a reduction of cost basis. Benefit payments from long-term care insurance riders will also not be taxable.

The Pension Protection Act allows annuity contracts to include long-term care coverage and under new Code Section 7702B(e)(1), such coverage will be treated for tax purposes as a separate contract. By separating the annuity and LTC portions of the contract, it has become possible for the long-term care coverage to be qualified under section 7702B as set forth by HIPAA.

Under new Code Section 72(e)(11), premium charges associated with long-term care coverage that are distributed from the cash value of an annuity contract will not be treated as taxable distribution, but as a non-taxable reduction of cost basis.

Wow. Thanks. Thats good to know! That takes one objection away from the annuity funding ltc concept.

 

[scagnt83]

Since we're on the topic of annuity/ltc combos.... For annuities funded with after-tax monies...

Part of the PPA went into effect this month:

Beginning January 1, 2010, cash value withdrawals from specific annuity contracts to pay for qualifying long-term care expenses or to pay qualified long-term care insurance premiums, will no longer be taxable income but considered as a reduction of cost basis. Benefit payments from long-term care insurance riders will also not be taxable.


Under new Code Section 72(e)(11), premium charges associated with long-term care coverage that are distributed from the cash value of an annuity contract will not be treated as taxable distribution, but as a non-taxable reduction of cost basis.

So this is only up to the basis though? Correct?