Hi Lane,Hi Tara, I'll answer in boldface, to try to keep it clear.
Its a new year and I was wondering how the tax laws have changed for 2013 for NUA. I am currently collecting unemployment and am still unemployed. I was thinking of doing the following and want to know how things have changed.
Actually the NUA rules haven't changed at all. There IS a higher capital gains tax in place for those making over $250,000, but if you're still unemployed that shouldn't apply here.
First some facts:
my cost basis is 4,861.29
the amount of my stocks if I were to sell all of them would be : $128,840.00
my finance advisor is saying I could put a portion on my stock in a non-qualifying brokerage account but I would have to pay on my cost basis. is this true? how much would it be?
OK. Normally, when you take money out of a 401(k) it is taxed as ordinary income and there's a penalty of an additional 10% (the 10% penalty doesn't apply if you've left the company, and left at age 55 or later).
So, for example, in that situation, if you had 10,000 of income from employment or any place else, and then you pulled 50,000 from your 401(k) that year, you would have 60,000 of regular taxable income ... and would be taxed ordinary income tax rates on it (AND there would be an extra 10% on the distribution amount if you weren't aged 55 by the time you left the company)BUT THERES AN EXCEPTION TO THAT for COMPANY STOCK IN A 401(K).
For company stock pulled from a 401(k), you only pay regular income tax (plus any extra 10% penalty for distributing before separation from service after age 55) on the basis.
So, when you pull it from the 401(k) and move it to a NON-QUALIFIED brokerage account, you only have taxes on that $4,861.29.
then- if I sell my stocks, I would get charged capital gains upon receiving the money- I don't plan on cashing out all of it only a portion of it. how have the laws changed and what do you recommend doing?
Then, only once you sell that stock, do you pay taxes on the rest (and as you know, you only pay capital gains taxes on that).
And yes, I would DEFINITELY recommend doing that ... and ding that with ALL of the amount that is company stock.
If you roll the stock to a QUALIFIED brokerage account (which would be a brokerage IRA) like I think I remember that you WILL be doing with the mutual fund portion of your 401(k), ... then although you're not taxed at THAT time, you lose the opportunity for the special NUA treatment forever on that company stock.
If you roll it to an IRA, like you are with the rest of it, then it will ALL be taxed as ordinary income, as you DO pull it from the IRA.
what are the new rates and charges , I should be aware of?
Again, nothing has changed that will affect you here. The tax brackets I gave you above for well above what you'll be dealing with have not changed (as a product of the "fiscal cliff deal").
The special treatment of capital gains at those tax brackets for those under 250,000 of income have stayed the same as well.
I am also willing to pay you again for this answer.
The last piece of advice would be, again, ...
(1) to move ALL of the COMPANY STOCK to the non-qualified account (you'll only have to pay regular income tax plus 10% penalty if you left before age 55 on that small amount of 4,861.29). That locks-in the NUA treatment for when you actually sell those shares
(2) Don't sell all of the stock this year if you can help it. Now that you will have locked in the special NUA treatment on that gain, you'll only pay capital gains taxes on the stock gain AS you sell it.
Thanks- Tara Bossert
Hope this helps,
And thanks for coming back to me!