Company Stock Distribution Analysis Calculator
If you own company stock in a retirement plan you may be able to take advantage of using the long term capital gains tax rate rather than your ordinary income tax rate on this investment. Normally, all earnings withdrawn from a retirement plan are taxed as ordinary income, at ordinary income tax rates. However, if you rollover your employer’s company stock from your retirement plan to a taxable investment account, you may be able to take advantage of a special set of rules that allow you to pay only capital gains taxes on a significant portion of the distribution. Use this calculator to see how such a transfer might benefit your retirement nest egg.
While this calculator can provide you with some insight, it was developed to be very general and may not fit everyone’s personal situation. Please feel free to contact our office after using this calculator so that we can perform a more thorough analysis.
- Net unrealized appreciation (NUA)
- NUA is the excess of the fair market value (FMV) of your company stock at the time of the transfer over its cost basis to the qualified plan’s trust. This amount will be taxed when you eventually sell the stock in your taxable account. Your NUA is treated as a long-term capital gain, even if you sell your stock immediately after transfer. Please note that any appreciation above the FMV of the stock that occurs after your transfer will be considered a short-term capital gain if you hold onto your company stock for less than one year. If the stock is held for at least one year after the transfer, it is then characterized as a long-term capital gain.
- Balance at time of distribution
- This is the fair market value (FMV) of the company stock, which will be transferred from your retirement plan.
- Total stock purchases (cost basis)
- This is the total amount you and/or your employer paid for the stock that you will be transferring. This is also referred to as the company stock’s “cost basis”. Your retirement plan administrator is required to provide you with the amount of your cost basis. When you transfer company stock to a taxable account and use the NUA strategy, instead of rolling it to an IRA, you pay taxes at your marginal income tax rate on the cost basis of the stock. This means that if the fair market value (FMV) of the company stock shares within your 401(K) is $1,000, and the total purchase price is $200 (your cost basis), you would only initially pay taxes on the $200 cost basis. The cost basis is usually taxed as ordinary income. Unless you qualify for an exception, there may be a 10% penalty tax on the cost basis, if both of the following criteria apply:
- You are younger than age 59-1/2
- You are separated from service, from the employer providing the retirement plan, prior to the year in which you attained age 55
Please consult with your tax advisor for more details.
- Rate of return
- This is the expected rate of return on your company stock. This is only used to help project your future account balance and subsequent taxes. It is important to remember that future rates of return can’t be predicted with certainty and that investments that pay higher rates of return are generally subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment.
- Holding period
- The number of years and months you expect to hold onto the company stock, after you have made the transfer.
- Capital gains rate
- This is the tax rate you expect to pay on any long-term capital gains. The current long-term capital gains tax rates through 2012 are:
- 0% if your ordinary income marginal tax rate is 10% or 15%
- 15% for all ordinary income marginal tax rates greater than 15%
Please note, this calculator does not include the impact of the Alternative Minimum Tax (AMT) which can increase the effective rate you pay on capital gains. Please contact your tax advisor for more information and the possible implications.
- Marginal income tax rate
- This is the tax rate used to determine taxes on your taxable income. Use the table below to help you determine your marginal income tax rate.
||$0 – 17,400
||$0 – 8,700
||$0 – $12,400
||$0 – 8,700
||$17,400 – 70,700
||$8,700 – 35,350
||$12,400 – 47,350
||$8,700 – 35,350
||$70,700 – 142,700
||$35,350 – 85,650
||$47,350 – 122,300
||$35,350 – 71,350
||$142,700 – 217,450
||$85,650 – 178,650
||$122,300 – 198,050
||$71,350 – 108,725
||$217,450 – 388,350
||$178,650 – 388,350
||$198,050 – 388,350
||$108,725 – 194,175
Source: Revenue Procedure 2011-52 http://www.irs.gov
- Expected inflation rate
- What you expect for the average long-term inflation rate. A common measure of inflation in the U.S. is the Consumer Price Index (CPI). From 1925 through 2011 the CPI has a long-term average of 3.0% annually. Over the last 31 years highest CPI recorded was 13.5% in 1980.
- Separated from Service At Age 55 or Older
- Check this box if you separated from service, from the employer providing the retirement plan, in the year you attained age 55 or later. Under these circumstances, there would be no 10% penalty tax on the distribution from the retirement plan.
- Retirement Plan Distribution Will Be At Age 59-1/2 or Older
- Check this box if the retirement plan distribution from the retirement plan will occur on or after the date you reach age 59-1/2. Under these circumstances there would be no 10% penalty tax on this, or any future distributions from the retirement plan or IRA.
- IRA Distribution Will Be At Age 59-1/2 or Older
- Check this box if the distribution from the IRA will occur on or after you reach age 59-1/2. Under these circumstances, there would be no 10% penalty tax on the distribution.
- Present Value
- The amount that a future sum of money is worth today based on an assumed inflation rate. By discounting future tax distributions to present values, comparisons between alternatives are placed on a common basis.
Information and interactive calculators are made available to you as self-help tools for your independent use and are not intended to provide investment advice. We cannot and do not guarantee their applicability or accuracy in regards to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.
Calculators are provided by an independent third party and are being made available to you as self-help tools for your independent use and are not intended to provide investment advice or be representative of actual results. We do not guarantee their applicability or accuracy in regards to your individual circumstances. The determinations made by these calculators should not be construed as guarantees or projections. Moreover, the reasonableness of certain information may change over time because of changes in tax law, investment trends and your personal circumstances. The information contained here is based on current law and has been obtained from sources believed to be reliable, but we do not guarantee its accuracy. Investment results can vary considerably depending on the type of securities involved, general market conditions and other factors. It is important that you periodically review and update your plans. Raymond James does not provide tax or legal advice. You should contact your tax or legal advisor concerning your particular situation. All investments carry a degree of risk, and past performance is not a guarantee of future results.