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The purpose of this 401(k) Net Unrealized Appreciation vs. Rollover calculator is to examine the possible tax benefits of transferring your 401(k) investments to a taxable account. In some cases, doing so can actually reduce your tax burden by treating the growth in your investments as capital gains instead of regular income upon disbursement. This calculator assumes the distribution of your entire 401(k) in a single lump sum and reinvesting them into a taxable account, rather than rolling them over into an IRA.
The conventional wisdom is that the best thing to do with your 401(k) is to leave it alone until you need the money. However, that isn't always the case.
Why? Because some investors may be better off allowing their money to grow in a regular taxable account rather than a 401(k). Because capital gains are often taxed at a lower rate than regular income.
A regular 401(k) allows you to make pre-tax contributions to a retirement savings account, where you investments also grow tax-free until you need it. When you begin to take disbursements, you pay income tax on that money – meaning you're paying income tax on both your original contributions and the gains you obtained by investing that money.
For investors, income may be taxed at rates of 25 to 40 percent. But capital gains are taxed at only 15 percent.
If you take your money out of your 401(k) and invest it in a taxable account, you pay income taxes on what you withdraw but your investments going forward will be treated as capital gains. So any further growth in your investments will only be taxed at the capital gains rate, currently 15 percent.
Depending on your anticipated tax rate and how long you plan to let the money grow in a taxable account, that can add up to a considerable savings. This calculator is designed help you figure out just how much.
To use this tool you will need to enter the balance of your 401(k) at the time of the distribution, the total stock purchased using cost basis, the current rate of return on your investments, holding period years, holding period months, capital gains rate, and marginal income tax rate.
Enter your information in the boxes indicated. Click on the description of any box for an explanation of what that box requires.
The calculator assumes that you are taking a lump sum distribution of company stock from a retirement account and that such company stock will be transferred to a taxable account, rather than being sold.
The Net Unrealized Appreciation (NUA) is the increase in the value of your company stock since it was acquired for your 401(k). You are taxed on this amount as a long-term capital gain when you receive the stock as a disbursement from the 401(k).
If you put then put the stock into a taxable account, any further increase in value will be treated as a capital gain when you eventually sell the stock. But if you roll the stock over into an IRA, that increase will be treated as regular income.
Note that if you roll over your stock to an IRA, rather than taking it as a taxable, in-kind distribution
You generally have to pay a 10 percent penalty on funds withdrawn from a 401(k) or IRA prior to age 59 ½. However, this doesn't apply if you separated from the service of the employer providing the retirement plan at age 55 or above. If you do not check any of these boxes, the calculator will assume you will be assessed the 10 percent penalty.
This calculator will run these figures and show you your total immediate taxes and total future taxes for each investment scenario. Click "View Report" for a detailed rundown.