If your small business doesn’t offer its employees a retirement plan, you may want to consider a SIMPLE IRA. Offering a retirement plan can provide your business with valuable tax deductions and help attract and retain employees. For a variety of reasons, a SIMPLE IRA can be a particularly appealing option for small businesses. The deadline for setting one up for this year is October 1, 2019.

The basics

Unlike cash or credit cards, small businesses generally don’t accept bitcoin payments for routine transactions. However, a growing number of larger retailers and online businesses now accept payments. Businesses can also pay employees or independent contractors with virtual currency. The trend is expected to continue, so more small businesses may soon get on board.

As the employer, you can choose from two contribution options:

1. Make a “nonelective” contribution equal to 2% of compensation for all eligible employees. You must make the contribution regardless of whether the employee contributes. This applies to compensation up to the annual limit of $275,000 for 2018 (annually adjusted for inflation).

2. Match employee contributions up to 3% of compensation. Here, you contribute only if the employee contributes. This isn’t subject to the annual compensation limit.

Employees are immediately 100% vested in all SIMPLE IRA contributions. 

Employee contribution limits

Any employee who has compensation of at least $5,000 in any prior two years and is reasonably expected to earn $5,000 in the current year, can elect to have a percentage of compensation put into a SIMPLE IRA.  SIMPLE IRAs offer greater income deferral opportunities than ordinary IRAs, but lower limits than 401(k)s. An employee may contribute up to $12,500 to a SIMPLE IRA in 2018. Employees age 50 or older can also make a catch-up contribution of up to $3,000. This compares to $5,500 and $1,000, respectively, for ordinary IRAs, and to $18,500 and $6,000 for 401(k)s.

A SIMPLE IRA might be a good choice for your small business, but it isn’t the only option. Contact your trusted advisor to learn more about a SIMPLE IRA or to hear about other retirement plan alternatives for your business.

Contact your trusted advisor with any questions.

Retirement savings plans are an ubiquitous employee benefit that have many regulatory and compliance requirements.
As plans reach over 100 employees, annual 401(k) audits are required. According to the US Department of Labor, a small “fraction of employers abuse employee contributions.” The U.S. Department of Labor Employee Benefits Security Administration issued 10 warning signs that pension contributions are being misused.

Ten Warnings Signs:

  1. Your 401(k) or individual account statement is consistently late or comes at an irregular interval.
  2. Your account balance does not appear to be accurate.
  3. Your employer failed to transmit your contribution to the plan on a timely basis.
  4. A significant drop in account balance that cannot be explained by normal market ups and downs.
  5. 401(k) or individual account statement shows your contribution from your paycheck was not made.
  6. Investments listed on your statement are not what you authorized.
  7. Former employees are having trouble getting their benefits paid on time or in the correct amounts.
  8. Unusual transactions, such as a loan to the employer, a corporate officer, or one of the plan trustees.
  9. Frequent and unexplained changes in investment managers or consultants.
  10. Your employer has recently experienced severe financial difficulties.

If you have compliance questions on your employee benefit plan, please contact the SKR+CO audit team.

By and large, today’s employees expect employers to offer a tax-advantaged retirement plan. A 401(k) is an obvious choice to consider, but you may not be aware that there are a variety of types to choose from:

Traditional

Employees contribute on a pretax basis, with the employer matching all or a percentage of their contributions if it so chooses. Traditional 401(k)s are subject to rigorous testing requirements to ensure the plan is offered equitably to all employees and does not favor highly compensated employees (HCEs).

In 2018, employees can defer a total amount of $18,500 through salary reductions. Those age 50 or older by year end can defer an additional $6,000.

Roth

Employees contribute after-tax dollars but take tax-free withdrawals (subject to certain limitations). Other rules apply, including that employer contributions can go into only traditional 401(k) accounts, not Roth 401(k)s. Usually a Roth 401(k) is offered as an option to employees in addition to a traditional 401(k), not instead of the traditional plan.

The Roth 401(k) contribution limits are the same as those for traditional 401(k)s. But this applies on a combined basis for total contributions to both types of plans.

Safe harbor

For businesses that may encounter difficulties meeting 401(k) testing requirements, this could be a solution. Employers must make certain contributions, which must vest immediately. But owners and HCEs can maximize contributions without worrying about part of their contributions being returned to them because rank-and-file employees have not been contributing enough.

To qualify for the safe harbor election, the employer needs to either contribute 3% of compensation for all eligible employees, even those who don’t make their own contributions, or match 100% of employee deferrals up to the first 3% of compensation and 50% of deferrals up to the next 2% of compensation. The contribution limits for these plans are the same as those for traditional 401(k)s.

Savings Incentive Match Plan for Employees (SIMPLE)

If your business has 100 or fewer employees, consider one of these. As with a Safe Harbor 401(k), the employer must make certain, immediately vested contributions, and there is no rigorous testing.

This has been but a brief look at these types of 401(k)s. Contact your financial adviser for more information on each, as well as guidance on finding the right one for your business.

The Colorado General Assembly has reinstated funding for the Senior Property Tax Exemption, also known as the  Senior Homestead Exemption, for tax year 2017, payable in 2018.

Consequently, some senior citizens may qualify to have 50 percent of the first $200,000 of the actual value of their primary residence exempted from property taxation.

The exemption has three basic requirements:

1) The qualifying senior must be at least 65 years old on January 1 of the year he or she applies;

2) The qualifying senior must be the property owner of record for at least 10 consecutive years prior to January 1; and

3) The qualifying senior must occupy the property as his or her primary residence and have done so for at least 10 consecutive years prior to January 1.

Applications for the Senior Property Tax Exemption are due no later than July 17.

Contact your financial adviser to see if you qualify.

“When should I apply for Social Security benefits?” is one of the most common questions baby boomers ask as they approach age 62, the age they become eligible to apply for early Social Security benefits. The answer is, “It depends.” Should you apply at age 62 and receive a reduced monthly benefit for a longer period of time? Should you wait until age 66, or even 70, and receive an increased monthly benefit for a shorter period of time?

The Social Security claiming decision is one of the most important financial decisions you will make in your lifetime. There are many variables to consider including health, life expectancy, current accumulated savings, anticipated inflation rates and lifestyle choices. Moreover, the monthly benefit amount is determined when a retiree begins claiming social security; the sooner you claim, the less you receive on a monthly basis.

On the flip side, there is a significant benefit to delay claiming as a retiree’s monthly benefit increases eight percent per year, until age 70. A chart posted by the Social Security Administration illustrates the positive month-by-month financial impact waiting has on a retiree’s benefit amount. However, no one can state with 100% accuracy that delaying the start of benefits until age 70 is the perfect choice. If a retiree holds off on claiming benefits until age 70 and then passes away at age 69, the retiree would have missed out on seven years of monthly benefit checks. If the retiree had claimed early benefits at age 62 then lived to age 95, he may have cost himself a tidy sum by receiving a reduced monthly benefit over 33 years of retirement.        

 

What Happens if I Apply Early?

Under current law, baby boomers born between 1943 and 1954 are considered to be at full retirement age when they reach 66. A person who applies at age 62 will receive approximately 48 more checks than someone who waits until their full retirement age. Since the early filers will receive 48 extra monthly checks, actuaries prorate their benefit amount so that people who live to average life expectancy will receive the same dollar amount. The reduction in benefits caused by this early claiming decision is called the actuarial reduction. Under current law, actuarial reduction is set at 25%. 

For example, Joe was born on October 1, 1954 and decides to claim his Social Security benefits on his 62nd birthday. Assuming he was entitled to a monthly benefit of $2,000 at age 66 (his full retirement age), Joe will receive a prorated monthly benefit of $1,500. This is the baseline amount that may be increased annually to account for inflation. 

 

What Happens if I Apply After Retirement Age?

On the flip side of the early claiming decision, some retirees wait to apply for benefits until after attaining full retirement age. Those who reach full retirement age and continue to delay claiming their benefits will receive fewer checks than those who claim at full retirement age. To compensate for delaying the onset of their benefits, the retiree will receive delayed retirement credits. For baby boomers born between 1943 and 1954, this delayed credit equals 8% per year for each year benefits are delayed up to age 70. That equals a 32% return over a four-year time period. If you consider how difficult it is to get an 8% annual return on your investments in today’s financial world, you can see one of the possible compelling factors to delay the start of your Social Security benefits.

Let’s assume Joe decides to delay filing for his benefits until he reaches age 70, his decision to delay increases his monthly check to $2,640. Joe’s decision to wait eight years enhances his monthly retirement income by $1,140 ($2,640 at 70 vs. $1,500 at age 62).

It is important to keep in mind that Social Security benefits are reviewed each year to keep up with inflation through an annual cost of living adjustment. By delaying the claiming decision, the cost of living adjustment (COLA) will be computed on the larger benefit amount. In Joe’s case, instead of this inflation adjustment being added to the lower benefit amount of $1,500 (if he started claiming at 62), it will be added to the larger $2,640 benefit amount (if he started claiming at 70). The cost of living adjustments are assessed annually for the remainder of Joe’s retirement. If Joe is survived by his spouse, she will generally continue to receive Joe’s enhanced $2,640 monthly benefit, plus annual cost of living adjustments, until her death.

The financial reasons for delaying Social Security benefits can be compelling. Unless mitigating circumstances exist (e.g., poor health, short life expectancy, no spouse, high performing investment portfolios), most of us can benefit from receiving a higher monthly amount by waiting to claim benefits until age 70. Delaying benefits and drawing down other retirement income sources – or working longer – can position retirees to start collecting a larger monthly Social Security benefit and to receive better cost of living increases each subsequent year.  

Interestingly, recent studies show a pronounced decline in claiming early benefits. Even so, more than a third of all workers claim Social Security benefits at age 62, which may not be in a baby boomer’s best interest with longer life expectancies and in the case of marginally funded retirement savings. Some would say that with recent advances in health care and emphasis on making healthy lifestyle choices, it is not unreasonable for boomers to outlive the average life expectancy and realize more financial benefit by waiting until age 70 to apply for Social Security. 

 

What is Right for Me?

Uncertainty around the Social Security system as a whole, or fear of passing away prematurely, may drive retirees to claim benefits early. All of us have the right to file when we become eligible, but carefully calculating the options is highly recommended. Instead of being driven by the fear of the unknown, we may need to consider our health and life expectancy, finances, inflation rates and desired lifestyle to help us make a prudent choice.  

The difference between a hurried claiming decision and a more thoughtful claiming decision could amount to hundreds of thousands of dollars over a lifetime. At Stockman Kast Ryan + Co., we invest in continuous education and specialized training in Social Security nuances. To further guide clients through the complex claiming decision, we also equip our tax advisors with the latest Social Security planning technology. We look forward to assisting when you are ready to plan this significant retirement step.

In addition to providing for your own retirement needs, a qualified retirement plan also offers valuable tax savings for the dental practice, and can help attract and retain quality employees. The good news is that you don’t need to invest in a complicated plan. There are several retirement plans that actually look, act and feel like a traditional 401(k) plan —without the cost and complexity. This is not an all-inclusive list, but is intended to discuss a couple of the more popular plans for dental practices. 
 

SIMPLE IRA

A Savings Incentive Match Plan for Employees (SIMPLE) IRA is a good start-up plan for small dental practices that do not currently sponsor a retirement plan. You agree to match up to 3 percent of an employee’s salary dollar-for-dollar or make a 2 percent non-elective contribution for each eligible employee. If the employee contributes 2 percent of salary, the practice matches that 2 percent. If an employee contributes 10 percent, the practice is only on the hook for the 3 percent match. 
 
Pros: 
 
Affordable to set up and maintain — Just use the forms provided by the IRS, set up the plan and notify your employees. You may be eligible for a tax credit of up to $500 per year for each of the first three years for the cost of starting the plan.  Administrative costs are minimal, and no annual IRS reporting is required. 
 
Matching contributions are deductible — Money you put in for employees is deductible as a business expense. 
 
Employees have control of their retirement savings — Employees can terminate their salary reduction contributions, and may roll over their funds to a traditional IRA or another employer’s retirement plan at any time. 
 
Cons:
 
Contributions are mandatory — As the employer, you are required to make contributions to your employee’s accounts each year — even if the practice is having a lean year. You can choose whether to make a matching contribution up to 3 percent of salary or a 2 percent non-elective contribution for each eligible employee. You must give written notice of the funding percentage annually to each participant no later than 120 days after the plan year ends. You can also reduce the matching percentage, but not below 1 percent, and not for greater than 2 out of every 5 years. 
 
Employer contribution limits  could be lower — The maximum contribution amount for an employee is $12,500 for 2016  — quite a bit lower than other retirement plans. Employees older than 50, can make an additional $3,000 catch-up contribution each year Employers are limited to the amount of contributions discussed above. 
 
There is a deadline for opening — SIMPLE IRA accounts must be opened by October 1 in order to make contributions for that tax year.
 

SEP IRA

A Simplified Employee Pension (SEP) IRA is a good choice for solo practitioners or those with just a few employees. Contributions are paid directly into an IRA created for each employee, and the same investment, distribution and rollover rules as a traditional IRA apply. Contributions to a SEP are tax deductible, and the practice pays no taxes on the earnings on the investments. The employee is also free to supplement the SEP-IRA with another retirement plan. 
 
Pros:
 
Easy set-up and maintenance — Just like a SIMPLE IRA, set up is simple and fees are minimal. In addition, there are no annual filing requirements with the IRS.
 
Larger employer contributions are possible — The practice may contribute up to the lesser of $53,000 (2015-2016) or 25 percent of compensation for each  participant. 
 
You don’t have to contribute every year — You are not locked into making annual contributions. In fact, you decide each year whether, and how much, to contribute to your employees’ SEP-IRAs. 
 
Cons:
 
The employer makes all of the contributions — Unlike a SIMPLE IRA, where part of the contribution can be taken out of employees’ salary, a SEP IRA requires the employer to make 100 percent of the contributions.
 
Contribution percentage must be the same for everyone — You cannot pay yourself a higher contribution percentage than your employees.
 
All employees must be included if they meet minimum requirements — This can be expensive as the practice grows and you start adding employees. 
 
 
Dental professionals often neglect retirement savings while building their practice. Yet, building a nest egg for yourself and your employees doesn’t have to be complicated or expensive. 
 
We can help recommend, based on your retirement goals and other factors, what type of plan would be best suited for your practice.

Confused ManYou may not need or even desire to take money out of your Individual Retirement Account (IRA) or your employer-sponsored retirement plan, but at some point you will be required to take withdrawals from these accounts. They are retirement accounts after all and they were not created to hold our money forever. This mandatory withdrawal amount is called your required minimum distribution (RMD). You can always take more than your RMD amount but you can’t take less. If you errantly withdraw less than the required amount, the shortfall is potentially subject to a 50% penalty (ouch!).

When do you need to start taking required minimum distributions?

In general, RMDs begin in the year we turn 70 ½. If your birthday is from January 1 – June 30, your first RMD will be attributed to the year you turn 70 since you will turn 70 ½ during the year you celebrate your 70th birthday. If your birthday is from July 1 – December 31, your first RMD will be attributed to the year you turn 71 since you will turn 70 ½ during the year you celebrate your 71st birthday. No one is quite sure where our Congressional leaders came up with the 70 ½ year figure although some have speculated they hatched this idea in a Washington, DC watering hole. Regardless of the rationale, it is the law at present.        

How are they calculated?

RMDs are calculated by dividing your retirement account balance at the end of the previous year by a life expectancy factor based on your age.

For example, Biff has an IRA account with a value of $1,000,000 on 12/31/14 and he turns 70 ½ on September 1, 2015.  Since Biff celebrates his 70th birthday in the same year he turns 70 ½, the IRS Uniform Lifetime Table tells us to use a life expectancy factor (divisor) attributable to a 70 year old which equals 27.4. We divide 27.4 into the $1,000,000 to arrive at his RMD of $36,496 for the 2015 tax year.

 

When must they be taken?

Your RMD for a particular year must usually be taken by December 31 of that year. The only exception to this rule is for the first year you are required to take an RMD. For this first year only, you are permitted to wait up to April 1 of the following year to take your RMD without penalty. Please keep in mind that delaying this first RMD until April 1 of the following year will mean you will be required to take two separate distributions during that year as all RMDs (other than the first year RMD) are required to be paid out by December 31 each year.

The date you are required to take your first mandatory distribution is generally referred to as your required beginning date (RBD). For those who have a 401(k) or other employer-sponsored retirement plan, the RBD is the same April 1 date, unless they are still working for the company where they have the retirement plan. If the plan participant does not own more than 5% of the company and if the plan document permits, they can delay their RBD until April 1 of the year following the year they finally retire. This is sometimes called the “still working” exception but it only applies to required distributions from employer-sponsored retirement plans. It does not apply to IRA accounts. Additionally, it will not apply if the participant is not currently working for that company.

For example, Brian has an IRA account with the local bank and a 401(k) plan with his employer and he is still working for the company sponsoring the 401(k) plan. Additionally, let’s assume Brian does not own more than 5% of the company he works for. When Brian reaches age 70 ½, he can delay taking distributions from his 401(k) account until April 1 of the year following the year he retires, regardless of his age. However, this “still working” exception does not apply to his IRA account. Brian will be required to take his RMD from the IRA account by no later than April 1 of the year following the year he turns 70 ½ years old.

      

How do distributions affect the earnings in my retirement account?

RMDs begin at less than 4% of the fair market value of your account and steadily increase each year  For example, the life expectancy factor for a 70 year old IRA owner taken from the IRS Uniform Lifetime Table is 27.4.  When we divide this factor into 100, we come up with 3.65 which represents the percentage of the account balance that must be withdrawn.  Continuing on, the life expectancy factor for a 71 year old IRA owner is 26.5.  When we divide 26.5 into 100, we get a distribution percentage of 3.78% (rounded up).  Each year will produce a slight increase in this percentage.   

As long as your earnings are more than 4% in your IRA during the initial, early years after reaching age 70 ½, and you are withdrawing only your RMD, your account value will continue to increase. Although the withdrawal percentage increases each year, this does not mean that your actual RMD, in dollars, will always be greater than the prior year. This will be determined by the actual investment performance of your account.

Conclusion

The Required Minimum Distribution rules can be quite confusing and there are different twists for different types of retirement accounts. We are very knowledgeable in this area and invite you to call us should you need any assistance with ensuring you stay compliant with these rules.      

       

TeenagersPreparing for retirement may be on your mind – and it should be. But have you thought about helping prepare your kids or grandkids for their retirement? Setting up a Roth individual retirement account for your teen can be a smart and rewarding move to consider at tax time, and you don’t have to be wealthy to do it.

High-school students with earnings from a summer job or babysitting probably aren't thinking of putting money away for decades. But you might plant the retirement-planning idea by funding a small Roth IRA for the teen—or by offering to match or put aside $2 or $3 for every $1 of taxable income the teen contributes.

There's no deduction for funding a Roth, but it differs from a traditional IRA in that you contribute with after-tax money but pay no taxes on withdrawals, meaning all growth is tax-free. A teenager working part-time will have one of the lowest tax rates, making it a good trade-off to pay taxes on contributions now rather than at retirement when the total and the tax rate will be much higher. And for your teen, that means decades of earning interest on interest which can result in a nice nest egg when they are ready to retire.

There are some requirements to establish and contribute to an IRA for your teen:

If you are self-employed, you can employ your children, pay them a salary and open a Roth on their behalf. Just make sure they do real work for a reasonable wage and you file W-2 forms reporting their earnings to the Social Security Administration.

Even with all of the benefits, it may be challenging to convince your teen to save now for retirement that is decades away. It may help to share what you have done towards your own retirement – good planning or poor. It also helps to paint a picture by providing some examples of what putting a certain amount away now and contributing to it over the years may mean in terms of real dollars for their future.

If you have questions about how best to help your teen (or you yourself) prepare for retirement, please contact us.

IRAThe Roth IRA is widely considered one of the greatest gifts the U.S. Congress has ever given to taxpayers. With a Roth IRA, contributions are made with after-tax dollars and, therefore, we do not receive an upfront tax deduction for the contribution. In return for not getting a tax deduction, the taxpayer gets something more significant – qualified distributions can be withdrawn tax free. Qualified distributions are distributions that occur after a five-year waiting period has elapsed and a triggering event has occurred. The triggering events are either the attainment of age 59½, death, disability, or a first time home purchase. Not only are your initial contributed amounts withdrawn tax free but all of the future appreciation in the Roth IRA account value escapes taxation as well.      
 
One problem that has frustrated many taxpayers is the relatively low income limits which prohibit many of us from being able to contribute to a Roth IRA. For 2015, a married couple filing a joint return will be unable to contribute to a Roth IRA if their modified adjusted gross income (MAGI) exceeds $193K. For a single person, the ability to contribute to a Roth IRA account disappears when MAGI exceeds $131K. 
 
We have been advising our clients for some time now about the strategy of contributing to a Roth IRA even when your income exceeds the above income limits. Many practitioners call this strategy a Backdoor Roth IRA Conversion. Let me explain how this works. 
 
First, you will need to contribute funds to a traditional IRA with your IRA custodian. In order to do this, you will need to have earned income and you must not have reached 70½ years of age. You do not need to inform your custodian whether this is a deductible or nondeductible contribution – just that it is a contribution to your IRA. 
 
For example, let’s assume you have the necessary earned income and you have not reached 70½ years of age. You contribute a maximum of $5,500 to your IRA account ($6,500 if you reached 50 years of age during the year). Once the IRA contribution posts to your account, you inform your custodian that you wish to convert these funds to a Roth IRA. Some practitioners suggest that you can do this conversion the very next day whereas others suggest you wait a short period of time. I recommend you wait until at least the next month (e.g., you fund the IRA on April 15 and call your custodian with the conversion order on May 1). 
 
There is one big caveat. This strategy only works well for taxpayers who do not already have money in traditional IRA accounts because the IRS pro-rata rule will apply. The pro-rata rule dictates that all owned IRAs, including SEP and SIMPLE IRAs, are included in the required pro-rata calculation. For example, let’s assume you already had a traditional IRA with a value of $95K (from deductible prior year contributions plus appreciation). If you attempted this strategy with a $5,000 current year contribution, the pro-rata rule would result in a fraction of $5,000/$100,000 so that only 5% ($250) would be a tax-free conversion. The other $4,750 would be taxable income from the conversion that would be reported on your income tax return. Obviously, this is not a great result for all this work. 
 
A better result plays out for the taxpayer who has no other IRA accounts. In this case, the entire $5,000 nondeductible contribution could be converted to a Roth IRA free of income tax. The only income that would be taxable for this taxpayer would be any appreciation on the $5,000 investment from the date of contribution to the date of conversion.
     
As you can see from the above examples, determining the best strategy depends on a number of factors. We would be happy to assist you in exploring this strategy if you wish to contribute money into a Roth IRA and your income exceeds the Roth IRA contribution limits.                   
Businessmen working on computersThere is a little known provision in the Internal Revenue Code that can provide a huge income tax advantage for certain taxpayers in the right circumstances. Although conventional wisdom tells us to roll over our retirement account assets to a rollover IRA account when we leave an employer or retire, the availability of the Net Unrealized Appreciation (NUA) tax strategy requires very careful consideration before we roll over these assets. 
 
If you own highly appreciated employer stock in your company’s 401(k) or other retirement plan, you may be quite a bit better off withdrawing the employer stock personally and rolling over only the other plan assets into a rollover IRA. If you follow the letter of the law, you will pay no current income tax on the employer stock’s prior appreciation or on the other assets rolled over to the rollover IRA. The only income tax you pay in the year of distribution would be on the cost basis of the employer stock held inside the retirement account. 
 
The greater the amount of appreciation in the employer stock held in your retirement account, the more advantageous this tax break becomes. The mechanics of this strategy are somewhat complicated but an example should help clarify how this works. Let’s assume you are nearing retirement and have a 401(k) with your employer valued at $1 million. Let’s further assume that the largest asset in your 401(k) is employer stock valued at $750K with a cost basis of $100K. Therefore, the employer stock has appreciated $650K (this is the NUA).
 
You direct your employer to distribute the $750K in employer stock, in kind, directly to you and you roll the other $250K in plan assets to a rollover IRA. You sell the employer stock the next day for $750K and you pay long-term capital gain on the $650K in appreciation you built up over the years. Under our current capital gain tax rate structure, this $650K would be taxed at 20%. Importantly, the IRS has made clear that the sale of NUA stock is exempt from the 3.8% net investment income tax that is generally added when we recognize a large capital gain event. As noted previously, you will also pay ordinary income tax on the $100K of cost basis in the employer stock that was distributed to you.                                            
 
If instead, you rolled the entire $1 million in plan assets into a rollover IRA, the NUA tax break is forever lost. An IRA rollover permanently kills any possibility of getting NUA tax treatment for the employer stock and is irrevocable. Once rolled over, any future distributions out of your rollover IRA will be taxed at your prevailing ordinary income tax rate which could be as high as 39.6%, depending on your particular situation.
 
To qualify for the NUA tax break, you must take a distribution of 100% of the retirement account during the year (the retirement account balance must be zero by the end of that tax year). The 100% distribution must also occur after any one of these four triggering events:
 
1) Death
2) Reaching age 59½ 
3) Separation from service
4) Disability
 
The favorable NUA tax treatment also applies when employer stock is distributed to the employee’s beneficiaries after the participant’s death. 
 
For most retiring employees, rolling over a lump sum distribution received from their employer plan is generally the best tax deferral and financial planning strategy. The opportunity for continued tax-deferred growth of retirement assets inside an IRA is extremely valuable for most retirees. That said, the possibility of NUA tax treatment for certain retirees holding highly appreciated employer stock should force us all to slow down and analyze our particular situation before we make an irreversible rollover decision.
 
If you are holding highly appreciated employer stock in your employer-sponsored retirement account, we would love the opportunity to discuss the NUA strategy with you.