| Top Frequently Asked Questions
about 401(k) Plans
f) Company Stock
I own employer stock in my 401(k) account and
because I am about to retire soon and will request a distribution,
I would like to know the tax advantages of having company stock.
- Company stock is taxed differently when it
is distributed to you in cash from your 401(k) account. With company
stock you will have to pay taxes on the value of the stock at the
time it was acquired through the plan, not the value at the time
the funds are distributed to you. This means any investment appreciation
or gains you make on your company stock will not be taxed. Be aware
though that this only works if you do not roll over the shares to
an IRA.
- Assume for instance you invested $60,000 to
acquire company stock in 1995. In 2009, you are now retiring and
your company stock is now worth $140,000. Through the 401(k) distribution,
you will receive the $140k but will have to pay tax on the $60k.
Later when you sell this company stock, you will be taxed as a capital
gain which is a lower tax rate than regular income tax.
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