esop

Submitted by William Newton on Tue, 2016-08-16 16:54

how do you do a rollout of privately stock in esop that is in a 401k plan? what are the tax consequences of selling the stock?

Permalink Submitted by Alan - IRA critic on Tue, 2016-08-16 23:52

You will need to find out from the plan if they will allow you to continue to own the shares. or whether you must sell them back to the plan. If the shares have been moved from the ESOP itself to the 401k, you may have more options.
The main decision is whether to roll over the shares to an IRA where you can sell them when you wish to diversify, or whether the shares have appreciated enough to consider NUA. With NUA, the shares are NOT rolled over to an IRA, but transferred to a taxable brokerage account. If you elect NUA, you pay taxes on the cost basis for the shares (what the plan paid for the shares when purchased for your account). These taxes are due for the year you take the distribution, and you must distribute all plans of a similar type held with this company in what is known as a lump sum distribution. When you sell the shares, you pay the lower LT cap gain on the amount of NUA (which is the difference between the share value and the tax basis you are taxed on). NUA is usually not worth considering if your cost basis is more than 30% of the value, unless you need the money right away to cover expenses. Note that if you must sell the shares back to the company, you can still use NUA because the shares are considered distributed to you and then immediately sold. Get detailed info from the plan administrator and a quote on the cost basis amount before making a decision.