Post 59-1/2 stock withdrawal from 4019k) | Ed Slott and Company, LLC

Post 59-1/2 stock withdrawal from 4019k)

Client is over 59-1/2 and still working, company allows distribution from 401(k). Client wishes to remove company stock in kind from plan. Tax implications? I don't believe this will fall under NUA as still working and plan won't be emptied in one tax year. Will the distribution be taxable at ordinary income rates unless transferred to an IRA? Is there any rules that would allow capital gains treatment of such a distribution?

The in kind distribution would usually be taxed at ordinary income rates except to the extent the shares were purchased with after tax contributions. If the after tax contributions were made prior to 1987 and the plan separately accounts for them, the distribution of company shares can be considered to come first from the pre 87 after tax shares. With respect to NUA, most applications of NUA involve lump sum distributions because this allows the use of company contribution shares. However, a scaled down use of NUA is also available if the distribution in NOT an LSD, however the NUA is limited to only the shares purchased by employee contributions.

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