For clients who have large holdings of their employers' stock in 401(k) plans, an attractive option for advisors has been to use the special tax break for net unrealized appreciation. Now, however, that option is no longer as clear-cut.
The break for net unrealized appreciation on lump-sum distributions from a qualified plan has allowed clients to trade ordinary income tax rates for long-term capital gains rates on a portion of their retirement savings, if they qualify under the lump-sum distribution provisions and have a triggering event: turning 591/2 years old, disability (only for the self-employed), separation from service (not for the self-employed) and death.
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