This months investor (TMI!): Retiree Plans to Save Thousands Using Little-Known Tax Provision

One of Katie’s new clients found us (like so many) as they were planning to retire. They were excited to begin a new chapter after nearly three decades with a major wholesale powerhouse.

Over their career, they had built a substantial portfolio of company stock alongside mutual funds in their 401(k). The final plan highlighted the importance of strategic money movement and knowledge of the tax code.

A standard rollover of all their 401(k) assets into an Individual Requirement Account (IRA) (while common) would have cost a projected $13,000 in additional federal tax, annually.

Instead, by leveraging the Net Unrealized Appreciation (NUA) strategy, Katie helped the client transition into retirement in a far more tax-efficient way.

Here are some highlights:

·         The client had a low basis (i.e. cost at purchase) in their company stock, within the 401(k).

·         These shares were directly transferred to an after-tax brokerage account and where they will pay ordinary income tax on the basis, instead of the full value.

·         When the client sells shares, they will pay lower, preferred capital gains tax rates on the gains.

·         The mutual funds in the 401(k) were rolled into an IRA, and no tax will be assessed until distributions begin, or they reach age 73 (required age to start withdrawing IRA assets).

This new plan to sell company stock over time is projected to save the client approximately $144,500 in taxes over the next 15 years.

Like we always say; it’s not how much you make, it’s how much you keep. Retirement planning is all about preserving your wealth and making it last.

We’re proud to help clients navigate life’s biggest financial milestones with clarity and confidence.