How to Pay Capital Gains Taxes INSTEAD of Income Taxes on your 401k

(don’t forget to checkout the video of this blog too)

Every dollar that comes out of a 401k is taxed at ordinary income rates…

UNLESS…..

……you own company stock inside of your 401k

This opens up the door for a little know tax strategy that allows you to avoid ordinary income tax rates.

This strategy can end up saving you thousands (or hundreds of thousands) in taxes in retirement.

It’s called the Net Unrealized Appreciation (NUA) strategy, and here’s how it works:

Let’s say you own $400,000 of stock in the company you worked for the past 20 years.

But, you only paid $100,000 for that stock.

That means you have $300,000 in “unrealized gains”…

But they’re inside of a 401k, so it doesn’t matter, right⁉️

Wrong‼️

What you can do is liquidate the 401k as a lump-sum distribution (not a rollover).

Now you move this money into a non-qualified (or non retirement) account.

The $100,000 that you paid for the stock is IMMEDIATELY taxable as ordinary income.

But, the $300,000 in appreciated stock value is not…

In fact, you could collect it completely tax-free under the capital gains rules!

You can slowly sell off that stock in retirement below the capital gains threshold and use as part of a tax-free retirement strategy.

This doesn’t always make sense but this is a way to take a large distribution without worrying about the progressive nature of the income tax brackets in retirement.

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