How do I minimize the amount of taxes I pay when I sell shares from a former employer's 401(k) plan?

I am 34 years old and I have company shares from a former employer's 401(k) plan in a brokerage account. I left the company five years ago. The companies' shares have significantly increased in value over the past 12 months. I'm skeptical if the shares will hold their value in the future, and I believe I should sell high and move the funds into my IRA. I know that if I sell the shares, I face tax implications. I'm trying to determine whether I should attempt to sell the shares, and if so, what is the best way possible to minimize the amount of taxes I am required to pay?


401(k), Stocks, Taxes
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November 2017

Bishop, Scott

Houston, TX

I am assuming that by “Company Shares”, you mean that you have company stock in your 401(k) and that is what you are talking about. If that is the case, and if you are worried about the tax and/or loss in value in those shares, here are your options:

  1. Sell the shares while still in your 401(k) - that addresses risk and there will be no tax on the sale.
  2. Roll the shares over to your IRA...depending on what you want to do (and which company it is, you can sell, put in stop/limit orders or use some options (put options and collars) to hedge the position.
  3. Know the rules on Net Unrealized Appreciation (NUA) before doing either #1 or #2 above. If you sell the shares or roll them over, you lose the ability to get the special tax break of having a capital gains treatment under the NUA rules.

To help in this decision, check out two of my articles:

Managing Concentrated Stock Positions

Net Unrealized Appreciateion (NUA) - the Untold Story

I also talk about this in my Retirement Survival Guide.

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