When you retire, you may decide to roll-over your company-related qualified strategy holdings into an Individual retirement account. You obtained a tax deduction for your contribution to these plans, therefore you will pay ordinary income tax rates once you withdraw them out of your Individual retirement account.
However, in the event you purchased your company stock through a qualified plan, you can lose a tax shelter on it in the event you roll that over to the IRA.
If you bought your company's stock via an Employee Stock Ownership Plan (ESOP), through your 401(k) or any other certified retirement plan, and also the stock has appreciated, you may pay lowered taxes on it in the event you don't roll it over into an IRA. Here's how the tax shelter works.
Ask for the shares of your company stock be distributed to you. You'll be required to pay tax on the quantity you contributed to their buy under the certified plan. That amount is taxed at ordinary income and that 'purchased' quantity so will become your tax basis in that stock.
Obviously if the shares have appreciated considerably beyond their value to you, their market value will be higher than your tax basis. The difference between the stock's present market value and your tax basis in them is the "net unrealized appreciation" (NUA). This NUA is the gain you will have in the event you sold the stock right away. In the event you do, you will be taxed on it at the lower 'long-term' capital gains rate regardless of how long you owned that stock, because it is treated as being held long term. Hence, the tax shelter is that you may trade what would usually be taxed as normal income (at rates up to 35%) as capital gains (15% in 2012).
You're not obliged to sell the stock, though, which means you can hold on to the stock as long as you wish - perhaps selling off blocks of shares as money is required, or over a period of years, to spread out the tax cost. You'll constantly only pay the capital gains over and above your cost basis at the long-term capital gains rate. You may even permit receivers to receive that equities and they will also receive a tax shelter!
In the event you simply rolled that stock into an Individual retirement account, you would be paying normal income tax rates as well on that portion which you may use the long-term capital gains tax rate by taking the stock directly. So in the event you did that, you would be losing a tax shelter - and cash
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