Problem: What to do with employer stock in a retirement plan when you retire.

        Strategy: Either roll it into an IRA or take a lump-sum distribution and use net unrealized appreciation (NUA) rules.

        Kevin Walsh, certified financial planner at Niehaus Financial Services, says NUA is the unrealized gain on company stock in a retirement plan that may be eligible for special tax treatment.

        Not all distributions qualify for NUA rules, but assume for now that yours does and that your 401(k) has $250,000 of company stock with a cost basis of $50,000.

        You can roll it all over to an IRA when you stop working, and it will continue to grow tax-deferred. All $250,000 and any future growth will be taxed at the ordinary income tax rates.

        You could instead have the stock distributed to you and pay ordinary income tax on the $50,000 cost basis that year. The $200,000 of unrealized appreciation would be taxed when sold at long-term capital gains rates, currently up to 20 percent.

        If the stock will be the primary source for funding retirement, it is usually better to do a rollover to an IRA and diversify. Your investments can continue to grow, but with less risk because they are spread across many different stocks, bonds and fixed investments. In this case, you also maximize the value of tax deferral.

        But the stock distribution might be better if you already have a large diversified portfolio, especially if you are under age 59 1/2 and need income immediately. You can use the lower capital gains rates and avoid stringent IRS regulations that limit withdrawals from an IRA before age 59 1/2. Because you will be selling employer stock over time, the performance of the stock during that period largely determines the success of this strategy.

        Readers: Consider Savvy Strategies as general information only and seek the help of professionals because circumstances might vary.

        Planners: Share your unique tips with Enquirer readers. Send your Savvy Strategies to Amy Higgins, 312 Elm St., Cincinnati 45202 or e-mail ahiggins@enquirer.com.

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