Is a company’s “stock fund” considered company sto
Client recently retired from Ford Motor Company, with a Ford’s TESPHE
(401(K) plan) valued at $234,000 on 12/31/07. Approximately $100,000 of the account is in the “Ford Stock Fund”. I don’t know if this fund qualifies as “company stock”.
A footnote on his statement says: ” units in the Ford Stock Fund represent
approximately 13499.2725 equivalent shares of Ford Common Stock at $6.73 per share. Remember you own units of the Ford Stock Fund.”
How can I determine if this holding qualifies for the Special Tax Break #1
noted on page 57 of Ed’s “The Retirement Savings Time Bomb and How to
Defuse It”? I am recommending that Client reposition his Savings Plan to an IRAR managed by our office, but I don’t want to ignore what may be an NUA situation for 40% of the account.
I welcome comments.
Permalink Submitted by Alan Spross on Sun, 2008-03-09 04:58
These unitized company stock funds typically DO qualify for NUA treatment, even though there may be some cash in the fund. However, this should be specifically confirmed by the plan administrator before acting on this assumption. If eligible, a cost basis quote should be obtained to determine the ratio of cost basis to NUA. There may also be an option to rollover some of the shares and transfer the rest to the taxable account. In some cases, the plan accounting even separates the cost basis of various lots vrs an average cost over all the shares.
Of course, the NUA decision should be made in consideration of client’s total tax situation, and it is not known how many years the current low LT cap gain rates will be around. Diversification is the prime concern here, and he should not be holding too much of a single company’s shares either, particularly a US auto maker.
As you know, once shares hit the IRA, the NUA potential is forfeited.