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Old 10-14-2017, 06:12 PM
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Capital Gains and Company Stock Fund in 401K

Exited company after 15 years. Part of 401K was invested in company stock fund. At exit, i received 1700 equivalent shares from the stock fund to leverage NUA.

If I sell these shares next month, will I be subject to LTCG taxes or STCG taxes in FY17? I've read that to qualify for LTCG taxes you have to have the investment asset for 1 year. I've had the stock fund for 15 years, so are the equivalent shares considered owned by me for more than a year or is the date of ownership of the stock the date the fund was converted to equivalent shares?

Appreciate clarification.



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Old 10-15-2017, 10:39 AM
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LTCG; Gains on investments owned for longer than one year are taxed at a lower rate than your regular income. The earnings you make in your 401(k) account are a different type of income from capital gains from regular investments and each is treated differently by the tax rules.Since the money in your 401(k) account is qualified retirement money under the tax rules, you will never pay capital gains taxes, no matter how large your 401(k) grows. However, this does not mean you get out of paying taxes. It means you pay taxes under the retirement plan rules and not the capital gains rules. When you take withdrawals from your 401(k) account, that money becomes regular taxable income to you. You report retirement plan payments on your taxes as income and not as investment gains or investment income. Withdrawing from your 401(k) in retirement produces the same type of taxable income as earning a salary or wages when you were working. Any and all money you take from your 401(k) account must be reported as income for the year of withdrawal. If you take money from your 401(k) before age 59 1/2, an extra 10 percent tax penalty will apply.



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