Many retirees have employer stock in their 401 (k) and profit sharing plans. In these cases, there is an opportunity for converting ordinary income (which could be taxed at rates up to 35% federal plus state) into capital gains income (taxed at only 15% federal plus state).
Here’s how it works with Net Unrealized Appreciation (NUA) on Distribution of Company Stock: Rather than rolling over the employer stock into an IRA, take actual distribution of the shares. You will pay tax (at ordinary income rates) on the basis of that stock.
The basis is the value of shares, you will be taxed on the unrealized appreciation as capital gain. If you rollover the shares into an IRA, you will pay ordinary income on the entire value of the shares, since they are withdrawn from the IRS.
Don’t Put That in an IRA!
Here’s a simple idea that can save you on your taxes—place certain assets in
your IRA and leave other assets out of your IRA. You should place assets that have the highest tax bite in your IRA. For most taxpayers, these items include income assets such as CDs, bonds, bond funds, and many mutual funds. These assets, which generate ordinary income and short-term capital gains, have their income taxed at the highest rates (e.g. federal rates up to 35%).
By placing these items in an IRA, you defer the high taxes as long as possible.
Try to keep Stocks out of your IRA. Long-term capital gains are taxed at a maximum of 15% for stocks outside your IRA. However, if you place stocks inside your IRA, when you eventually remove the money, it gets taxed at regular rates up to 35%.
FREE REPORT: How to keep the IRS from taking up to 80% of your IRA.
For additional reports visit www.promoneyreports.com/polarisfinancial
Source: http://www.ArticlePros.com/author.php?John Fultz II
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