A person is 59. He has a $500K 401K that’s at present 95% inventory and 5% bonds. He wish to shift that to a 70/30 cut up. $400K of that is firm inventory for which he paid $100K. He has a few key choices right here:
1 – Simply reallocate inside the 401K, shifting cash from inventory to bonds to get to the specified 70/30 cut up. Doing which means one he retires and begins pulling cash out of the 401K, that cash might be taxed as earnings based mostly upon his tax bracket in retirement.
2 – Wait till he’s 59.5 and leverage the NUA choice. To do that he would pull ALL of the corporate inventory out, pay earnings tax at his present charge on the $100K, pay Capital Gains tax on the remaining $300K, after which deposit the remaining cash someplace else the place he can pull from in retirement with out paying any further taxes.
And I shut on this? Does he have to drag ALL of the corporate inventory? Or does he have to drag ALL of the 401K stability in it is entirety? Does he have to shut the 401K, or can he proceed to contribute to it? As the actual consideration in all of this actually come down to only evaluating the impression of Capital Gains Tax now in a lump sum versus Income Tax for the remainder of his life every time he pulls cash? THANK YOU on your assist in understanding this.