401k to annuities plan worksheet

Gather your current financial plan and evaluate your retirement goals. Do you think you will outlive your savings? If yes, text 408-854-1883 for our field underwriter to show you a plan. Do review your current plan with your family, advisors and other pros. Fixed Index Annuities are savings you wanted to keep for at least 10 years and then start withdrawing them and have a lifetime income with death benefits and other benefit riders.

Real Estate IRA Caveats

Investing in real estate inside an IRA comes with strict rules. Complication number one: Owning property in an IRA negates all the familiar tax benefits of owning investment real estate, says James Lange, a CPA and financial planner in Pittsburgh. You can’t deduct property taxes or mortgage interest or take advantage of depreciation.

Aggravation number two: There’s a long list of prohibited transactions. You and your relatives are barred from occupying or working on the property, so forget free rent or “sweat equity.” The IRA, not you, owns the place, so if you’re considering a rental property, you’ll need a property manager to find tenants. Every dollar you invest in the property, plus expenses such as roof and furnace repairs, must come out of the IRA. Flout any rule and it’s a Catastrophe: The tax-deferred status of your entire IRA is ruined, and you’ll owe income taxes on the full value of the IRA’s assets, plus a 10% penalty if you’re younger than 59½.

Contact Connie Dello Buono, helping doctors and business owners reduce income taxes via a busiess structure and financial strategy. 408-854-1883 motherhealth@gmail.com or conniedbuono@gmail.com

http://www.hardingfp.com Schedule a phone chat with our sr investment advisor

Net Unrealized Appreciation and Qualified Retirement Plan Distributions

Often, individuals employed by large corporations have the option to invest some of their qualified retirement plan contributions (e.g., 401(k) contributions), as well as employer contributions, into their employer’s stock. If you believe in the long term prospects of the company, that may make sense as part of your asset allocation strategy.

But what happens to that stock when you retire or leave the company? What happens if you still believe in the future prospects of the company and still considers the company stock a sound investment? You probably already know that distributions from a qualified plan can be somewhat complicated and have income tax consequences. But, is there a distribution strategy that may be effective to help you maintain the stock and minimize income taxes when you leave the company?

A Possible Solution: Net Unrealized Appreciation (“NUA”)

NUA is a tax strategy that allows you the opportunity to convert taxable ordinary income into long-term capital gain. Ordinarily, if you took a lump sum distribution of the assets in the plan, you would pay ordinary income taxes. However, when company securities are part of the distribution from the plan, using the NUA strategy, you can pay ordinary income taxes on just the cost basis of the shares, but defer and convert to capital gain the tax on the difference between the fair market value of the shares and the average cost basis of those shares. The difference is the net unrealized appreciation. When the shares are actually sold, the NUA will be taxed at long term capital gains rates regardless of how long the plan held the shares. If there is additional appreciation of the shares after the shares are distributed from the plan, that growth is taxed as long or short-term capital gains, depending on whether the ultimate sale is more or less than one year after the distribution.

Note: you can elect to pay the taxes upon distribution instead of waiting until the shares are sold. In some situations, depending upon cash flow concerns and anticipated future tax rates, payment of the taxes at distribution may make sense. In addition, in order to qualify as a lump sum distribution, the distribution must be on account of death, separation from service or the attainment of age 59 ½ years. (The definition is slightly different for self-employed persons: “separation from service” does not qualify; disability does.)


Jim, age 60, is ready to retire and has a balance in his employer’s retirement plan of $300,000, including company stock with an average cost basis of $30,000, and a fair market value of $130,000 (the NUA is thus $100,000). Jim’s account is a result of the many years of pre-tax contributions and employer matches to the account. If Jim takes a lump sum distribution from the plan, normally, he would pay ordinary income tax on the full $300,000 in the year of distribution. Under the NUA strategy however, Jim deposits the company stock into a brokerage account but does not sell it. As a result, only the $30,000 average cost basis of the company stock, and the $170,000 value of the other assets in his account (for example, mutual funds), would be taxed at ordinary income rates. The NUA would not be taxed. Sometime later, Jim sells the company stock. At that time, the NUA will be taxed at long term capital gains rates when the employer securities are sold, regardless of the holding period. However, any additional appreciation of the securities after distribution from the plan is taxed as either a short or long term capital gain depending on Jim’s holding period after distribution.

Now, suppose that instead of taking a lump sum distribution, Jim wants to roll over his entire qualified plan account into an IRA. This may be the appropriate strategy depending upon Jim’s situation. However, by rolling over the company stock into the IRA, the NUA tax treatment would be lost. Jim should take the company stock, place it into a regular brokerage account and roll over the remaining balance to an IRA. Jim would roll over the $170,000 of his account balance (i.e., everything other than the company stock) to an IRA. He would take a direct lump sum distribution of the $130,000 in company stock and place it in a securities brokerage account. $30,000 would be ordinary income, and the $100,000 of NUA would qualify for the special tax treatment.

If Jim was under age 55 at distribution, (or even if he were under 59 ½ and not leaving the company, he would not be able to take a lump sum distribution from the plan without a 10% premature distribution penalty on the taxable portion, i.e. the $30,000 average cost basis component of the stock distribution. In that case, Jim may wish to roll the entire account into an IRA.

So far, we’ve talked about the NUA strategy using your pre-tax employee contributions and the company match, if any. Some plans also allow employees to make after-tax contributions to the plan. Suppose you also made after-tax contributions and used that money to purchase company stock?

You can roll the entire account into an IRA, but the appreciation of these shares of company stock, purchased with after-tax contributions, will be subject to ordinary income taxes when you take distributions from the IRA. Similar to the situation mentioned above, where company stock is purchased with pre-tax contributions, shares purchased with after-tax contributions should be distributed to utilize the NUA strategy. The difference is that the average cost basis is not taxed when the contributions are made with after-tax dollars. The reason: these shares were purchased with after-tax dollars so it was already taxed. The NUA and additional appreciation will be subject to capital gains tax as explained before.

Could you do a direct Roth IRA conversion of the entire plan balance and still maintain the favorable NUA tax treatment? This area is unclear, but probably not. The lack of clarity is a result of inconsistent language between certain provisions in the Internal Revenue Code, legislative history and the interpretation of these provisions by the IRS.


If you invested in your company’s stock in your employer sponsored qualified retirement plan, before you decide upon a lump sum distribution from the plan, or a rollover of the account balance, including the company stock, into an IRA, consider whether you may be entitled to use the NUA tax strategy to reduce your income tax liability.

The foregoing information regarding estate, charitable, retirement and/or business planning techniques is not intended to be tax, legal or investment advice and is provided for general educational purposes only.  You should consult with your tax and legal advisor regarding your individual situation.


Free 30min phone chat with a sr financial advisor at Harding Financial to help you reduce income taxes using a business structure and financial strategies, connie.dellobuono@hardingfinancial.com or conniedbuono@gmail.com 408-854-1883

Make 2014 and 2015 be the year to protect your wealth and secure your retirement.

 Connie Dello Buono
Jr Financial Advisor

401(k) Plans Are Not Just For Big Businesses

A significant portion of the small business market consists of one person businesses. If you have a client whose business is a one person operation, s/he may be a perfect candidate for a Solo 401(k) Plan. A Solo 401(k) plan is a 401(k) plan for a one-person business and may offer your client an opportunity to increase his or her tax-deductible contributions to his/her retirement plan. Additionally, if you have a client who is thinking of establishing a SIMPLE or SEP Plan, a Solo 401(k) may be a better choice that will help enable your client to maximize his or her tax-deductible contributions, and to help meet his/her long range retirement goals.

First, it’s important to understand that Profit Sharing Plans and SEP Plans allow for flexible employer contributions up to 25% of participating payroll. SIMPLE Plans only allow for employee deferral contributions which are limited to $12,000 plus a $2,500 catch-up contribution for participants age 50 or older, as indexed for 2014, but do not allow for flexible employer contributions. Since all 401(k) plans are profit sharing plans with a cash or deferred arrangement (CODA), which allow employees to contribute or defer a portion of their salary into the plan, in addition to the employer profit sharing contribution, a business owner may make both an employer and an employee deferral contribution all in one plan for himself or herself.

This means a business owner with no employees and earning $100,000, could set up a Profit Sharing Plan or SEP Plan, and make a maximum tax-deductible contribution of $25,000. However, since a plain Profit Sharing Plan or a SEP Plan only allows for employer contributions, the business owner may be limiting the amount of money that can be put aside for retirement, as well as the tax savings, with just a plain profit sharing plan or SEP Plan. By adding a 401(k) deferral element to a Profit Sharing Plan, the business owner has just increased the amount that can be contributed on a tax-deductible basis on his or her own behalf.

Let’s look at an example: There is a limit on the overall contribution that can be allocated to any individual in a profit sharing plan or SEP Plan. For 2014, the limit is 100% of compensation up to a maximum of $52,000, as indexed for 2014. The maximum individual deferral amount, as indexed for 2014, is $17,500. In addition, a participant who is age 50 or older, is eligible to make a catch-up contribution of $5,500, as indexed for 2014, for a total salary deferral contribution of $23,000. SEPs do not allow for deferrals nor a catch-up contribution, although a Profit Sharing/401(k) Plan does. So the same business owner described above could establish a solo Profit Sharing/401(k) Plan and increase his contribution amount to $48,000 which is an increase of his or her deductible contribution by 90%. The chart below illustrates a comparison of the maximum contributions applicable to each plan for a 50 year-old business owner at different salary levels.

Business Owner’s Salary

( age 50 or older)


Plan Max. Deferral

(Including Catch-up Contrib..)



Maximum Contrib. of 25%

Profit Sharing/401(k)


Deferrals and















Here’s more good news: An existing profit sharing plan may be easily amended to become a Profit Sharing/401(k) plan. In addition, contributions previously made to a SIMPLE or SEP Plan, may be rolled over, in most cases, to a Profit Sharing/401(k) plan. Furthermore, there are no reporting requirements associated with a one-participant plan or a one participant and spouse plan, until the plan assets total $250,000 or more. Even then, only a Form 5500EZ is required to be filed.

Another important benefit to establishing a Profit Sharing/401(k) Plan is that the business owner may purchase life insurance on a tax-deductible basis by purchasing it through the Profit Sharing/401(k) Plan Trust as long as the premiums are within the incidental benefit limits. This is not allowed in a SIMPLE or SEP Plan as the funding vehicle is an IRA. Profit Sharing/401(k) plans also have special rules associated with life insurance limits not available in any other type of qualified plan, such as using rollover or seasoned money to buy life insurance.

The foregoing information regarding estate, charitable and/or business planning techniques is not intended to be tax, legal or investment advice and is provided for general educational purposes only.  You should consult with your tax and legal advisor regarding your individual situation.

Contact Connie Dello Buono 408-854-1883 motherhealth@gmail.com to have a free 30-min chat with a financial advisor.

Info expires Dec 2014