It’s not uncommon for me to meet with prospective clients who have a large concentration of company stock in their retirement account. Even though they’ve heard of stories of devastation such as WorldCom and Enron, they feel that their company is different. And maybe it is.
In this article I won’t argue for diversifying a concentrated position of company stock, but I will bring up a provision of the tax law that may allow for a more favorable tax treatment on the sale of this company stock.
Typically, if company stock is inside of a retirement plan, the sale of the stock does not trigger a taxable event. It is only the distribution of money out of the retirement plan that causes taxation (as ordinary income).
An alternative exists that allows for the sale of company stock to be classified as long-term capital gains rather than ordinary income, called Net Unrealized Appreciation (NUA). The requirements for this type of transaction are complex and not following them exactly can result in significant detriment, so I highly recommend that you consult a tax professional skilled in the nuances of NUA.
If you have a large amount of company stock in your retirement plan, I refer you to an excellent article on Net Unrealized Appreciation here:
https://www.thebalance.com/when-does-using-net-unrealized-appreciation-make-sense-2388276
What are your thoughts about having company stock in your retirement plan? contact me.
