Realizing Unrealized Capital Gains

Bradley, Susan K.
January 2000
Journal of Financial Planning;Jan2000, Vol. 13 Issue 1, p34
Academic Journal
This article provides information on how financial planners can help their retiree clients take advantage of net unrealized assets (NUA). A qualified company retirement plan is eligible to be rolled over into a traditional Individual Retirement Account (IRA), thereby avoiding immediate taxation. If the plan contains company stock, another option exists: the company stock qualifies as a net unrealized asset. The NUA status is available regardless of who buys the stock. If the stock is placed in a regular brokerage account rather than being rolled over into an IRA, income tax will be due on the cost basis of the stock, not the current value. If the stock has been appreciating for many years, the opportunity for big tax savings may exist. Exposing the stock to immediate tax may be advantageous in the long run. After paying tax on the cost basis, the stock may continue to grow tax-deferred, until it is eventually sold. And when it is sold, the difference between the cost basis and the then-fair market value will be subject to capital gains tax. If the stock is transferred to a rollover IRA, it will eventually be subject to ordinary income tax on the full fair market value.


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