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Cash in, not out: Reap a tax bonanza on retirement plan payouts

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in Small Business Tax,Small Business Tax Deduction Strategies

If you’ve invested a lot of your retirement plan funds in your employer company stock (including a company you own), you may be in line for a big future payday. When it comes time to retire, you can choose to cash out by having your retirement account sell the stock, or you might decide to simply take your payout in the form of company stock.

Which is best?

Strategy: Opt for the payout in company stock. Thanks to a giant loophole in the tax law, you only have to pay current federal income tax on the plan’s original cost of the stock. In other words, any appreciation in value is 100 percent tax-free until you actually sell the shares!

But that’s not the end of the story. If you sell the stock down the road, you’re required to pay capital gains tax on the difference between the sales price and the original cost. As long as you meet the holding period for long-term capital gain, the maximum federal tax rate is no more than 15 p...(register to read more)

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