ATTENTION: Union Pacific Non-Agreement Employees
How to Avoid a Common Rollover Mistake That Could Cost You Thousands in Retirement Funds
Some retirees take the easy route and roll all their money into an IRA without first understanding that a complex technique called “Net Unrealized Appreciation” (NUA) can save you a significant amount of money.
Here’s the deal: if you have been buying corporate stock in your 401(k), you will have a one-time opportunity to transfer your stock into a regular (non-IRA) brokerage account rather than roll it into an IRA.
Many Union Pacific employees own corporate stock that is three to five times their original cost, and this creates a fantastic planning opportunity. Sooner or later you will have to pay taxes on the stock gain. If you roll all of the stock into your IRA, you will pay taxes when you take the money out (and you will indeed eventually be forced to via the IRS RMD rules).
With your steady Harriman Pension and Railroad Board payments, the IRA distributions are going to be taxed at a high ordinary income tax rate. Yes, the taxes on the gain will have to be paid some day. But if I could show you how paying a small portion of the taxes up front, deferring a bulk of the taxes until later, and paying a cheaper capital gains rate would save you money, would you be interested in learning more?
Wait, there’s more. If you never cash the stock (which we don’t necessarily recommend), your heirs will get something called a “step up in cost basis” and avoid future capital gains growth on the stock altogether. However, if the stock is left in a 401(k) or IRA, your heirs will pay the higher ordinary tax rate on all the proceeds.
I have witnessed one Union Pacific retiree miss this opportunity on several million dollars of gains all because they were indecisive or wanted to avoid hiring a financial planner!