TAX BREAK FOR COMPANY STOCK PAYOUTS

Dear Friends of RC Jones & Associates

If you’re getting ready to retire, you may be receiving a big payout from your company retirement plan. That is especially true for successful small business owners who have invested in their own company’s stock.

Surprisingly, it’s what you take out of a retirement plan, not necessarily how much you take out, that counts most for tax purposes. Following are some of the details.

Absent any special circumstances, a lump-sum distribution from a qualified retirement plan is taxed as ordinary income, at individual tax rates reaching as high as 35%. That can put a big tax dent in your nest egg for retirement. However, there’s a giant loophole in the tax law for payouts in the form of company stock. In that case, your taxable gain is figured on the plan’s original cost of the stock.

In other words, you don’t have to pay any tax on the distribution of company stock. The payout is 100% tax-free until you actually sell the stock!

To sweeten the deal even further, your taxable gain from the stock sale will be treated as a favorably-taxed capital gain. Currently, the maximum tax rate on long-term capital gain is only 15%. So, you’re a tax winner twice -- once at the time of distribution and once upon the sale of the company stock.

Naturally, you face several critical decisions as you near your expected retirement date and you can literally save thousands of tax dollars by making the right tax choices for your particular situation. For example, one possible alternative is to roll over funds into an IRA to continue tax deferral. We would be happy to provide whatever assistance you require in these matters even refer you to qualified investment professionals. Don’t hesitate to give us a call at (816)792-9966.

Very Truly Yours
Robert C Jones