- Balance at time of distribution
- This is the total amount that you are going to transfer from your 401(k) to a normal, taxable account. This calculator assumes that the entire transferred amount is company stock, held in your 401(k). This calculator also assumes that you are not subject to any penalties for early withdrawal. If you are under age 55 you may be subject to an early withdrawal penalty of 10%.
- Total stock purchases (cost basis)
- This is the total amount you paid for the stock that you are going to transfer. This is also referred to as your "basis". Your basis is required to be made available to you by your 401(k) plan administrator. When you transfer company stock to a taxable account, instead of rolling it to an IRA, you pay taxes at your marginal income tax rate on the basis of the transfer. This means that if you have $1,000 in company stock in your 401(k) that you purchased for $200 (your basis), you would only pay taxes on the $200 basis. The basis is always taxed as ordinary income tax rates.
- Net unrealized appreciation (NUA)
- The difference between the current market value of your company stock, when you initiate the transfer, and its basis. This amount will be taxed when you sell the stock from your account. Your NUA is considered a long term gain, and subject to lower long term capital gains tax rates even if you liquidate your stock holdings immediately. Please note that any appreciation that occurs after your transfer has occurred will be considered a short term capital gain unless you hold your company stock for at least one year after the transfer.
- Holding period
- The number of years after you have made your transfer that you expect to hold your company's stock.
- Rate of return
- This is the annually compounded rate of return you expect from your investments before taxes. The actual rate of return is largely dependant on the type of investments you select. From January 1970 to December 2006, the average compounded rate of return for the S&P 500, including reinvestment of dividends, was approximately 11.5% per year (source: www.standardandpoors.com). During this period, the highest 12-month return was 61%, and the lowest was -39%. Savings accounts at a bank pay as little as 1% or less.
It is important to remember that future rates of return can't be predicted with certainty and that investments that pay higher rates of return are subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment. It is not possible to invest directly in an index and the compounded rate of return noted above does not reflect additional sales charges and fees that funds may charge.
- Capital gains rate
- This is the tax rate you expect to pay on any capital gains, which includes any NUA of company stock that you are transferring. The current capital gains tax rates are 5% for income that would have been taxed at 10% or 15% if it were ordinary income and 15% for all other capital gains. Please note, this calculator does not include the impact of the Alternative Minimum Tax (AMT) which can increase the effective rate you pay on capital gains. If you believe you will be subject to AMT please contact your tax advisor for the possible implications.
- Marginal income tax rate
- This is the effective tax rate you would expect to pay on this transfer if it were to be taxed as ordinary income. Use the table below to help you determine your marginal tax rate.
| Filing Status and Income Tax Rates 2007 |
Tax rate | Married filing jointly
or Qualified Widow(er) | Single | Head of household | Married filing separately |
| 10% |
$0 - 15,650 |
$0 - 7,825 |
$0 - $11,200 |
$0 - 7,825 |
| 15% |
$15,651- 63,700 |
$7,826- 31,850 |
$11,201- 42,650 |
$7,826- 31,850 |
| 25% |
$63,701- 128,500 |
$31,851- 77,100 |
$42,651- 110,100 |
$31,851- 64,250 |
| 28% |
$128,501- 195,850 |
$77,101- 160,850 |
$110,101- 178,350
|
$64,251- 97,925 |
| 33% |
$195,851- 349,700 |
$160,851- 349,700 |
$178,351- 349,700 |
$97,926- 174,850 |
| 35% |
over $349,700 |
over $349,700 |
over $349,700 |
over $174,850 |
Source: http://www.irs.gov/formspubs/article/0,,id=164272,00.html
- Separated from Service At Age 55 or Older
- Check this box if you separated from service from the employer providing the retirement plan prior to the year you attained age 55. Under these circumstances, there would be no 10% penalty tax on the distribution from the retirement plan.
- Final Distribution Will Be At age 59 1/2 or Older
- Check this box if the final distribution will occur at age 59 1/2 or older. Under these circumstances, there would be no 10% penalty tax on the distribution from the IRA.
- Distribution From the Retirement Plan Will Be At Age 59 1/2 or Older
- Check this box if the distribution from the retirement plan will occur at age 59 1/2 or older. Under these circumstances there would be no penalty tax on any and all distributions.
- Expected inflation rate
- What you expect for the average long-term inflation rate. A common measure of inflation in the U.S. is the Consumer Price Index (CPI), which has a long-term average of 3.1% annually, from 1925 through 2006.
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