Do you have a good deal of your retirement plan assets invested in your employer's company stock? If so, upon retirement, you have another option for the distribution of that stock that not many taxpayers are aware of.

If the stock is retained in your retirement plan, or transferred to an IRA and then sold in order to make a retirement distribution to you, you would pay your regular income tax rate on the entire amount of the distribution, which might be as high as 35 percent.

Under the Net Unrealized Appreciation method, the "cost basis" or original purchase amount of the stock will be taxed at the employee's top tax rate when the stock is withdrawn from the account upon retirement. Both the appreciation in the stock that occurs before the withdrawal and the subsequent appreciation will be taxed at the top capital gains rate (currently 15 percent) at the time the stock is sold.

The result of this maneuver puts your employer's stock in your hands, and saves tax on the appreciation or increase in value of the employer stock.

If this method is elected upon retirement, the employer stock should be withdrawn from the retirement plan account and transferred to a brokerage account. Other assets in your retirement account would need to be withdrawn at the same time, but could be rolled into an IRA tax-free.

This approach is not right for everyone and there are a number of rules to follow in implementing this strategy, but for the right situation it can be a huge tax savings device.

If you are interested in this or any other tax advice, please contact one of the tax professionals at any of the Rea offices.

-By Edward Ott, CPA, CVA (Mentor office)

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