401k rollover to Roth IRA, All company stock
What are the tax implications of rolling over an all company stock with a cost of 425,000 and growth of 1,200,000 growth? The client is 72 and has kept all of his retirement with the company he worked for and wants to put it all in a Roth now. Correct process /
Permalink Submitted by Alan Spross on Mon, 2008-05-12 19:44
There could be several options available here that he may or may not be eligible for such as:
1) 10 year option or cap gain treatment IF he was born prior to 1/2/1936.
2) NUA for all or part of the shares. Ordinary tax due on 425,000 if all shares elected. The gains will be subject to LT cap gain rates when sold.
Both of these depend on if he is eligible for a lump sum distribution. NUA would not be available if he has been taking RMDs or other distributions since retirement.
3) If he rolls it all (less the RMD) to a TIRA, there will be no current tax, however he may not qualify for a Roth conversion if his MAGI is over 100,000. This income limit goes away after 2009. If he can convert, then he will have a huge tax bill and increase his marginal rate to the top rate because he will have 1.6mm income plus any other income he has. This also applies if he did a direct plan to Roth conversion, which is new this year. Instead, he might consider converting smaller amounts each year. In fact, his entire financial and estate situation needs to be considered to determine how much, if any should be converted to a Roth.
Some of these options could be eliminated by knowing his date of birth, date of separation from the employer holding the plan, etc. You also need to determine if he has any after tax contributions in the plan. This is one of those situation that will require quite a bit of analysis, first determining what options are available, and finally what is best considering all the other factors.
Here is link to extensive conversion analysis considerations:
http://tax.cchgroup.com/images/fot/JORP_10-03-07_Keebler-Bigge.pdf