Taxation of Retirement Distributions
Chapters in this video
- 0:00 Pre-tax in, ordinary income out: the retirement tax matrix
- 1:37 The pro-rata blender on traditional IRAs
- 3:19 Why you cannot isolate a separate IRA to dodge pro-rata
- 3:47 NUA and the golden employer stock strategy
- 5:03 The in-kind requirement and Sam the supervisor's checklist
- 6:22 Rapid-fire exam recap
What this video covers
- The core principle that pre-tax money comes out as ordinary income while Roth money comes out tax-free, including earnings
- How the pro-rata rule blends deductible and non-deductible IRA dollars into one taxable ratio you cannot cherry-pick around
- Why the Internal Revenue Service (IRS) aggregates all of a client's traditional, Simplified Employee Pension (SEP), and SIMPLE IRAs into one pool for pro-rata purposes
- What net unrealized appreciation (NUA) is, and why only the cost basis is taxed as ordinary income at distribution
- The three NUA requirements: lump-sum distribution, qualifying event, and employer stock distributed in kind
- Why selling employer stock inside the plan destroys NUA treatment and converts the entire amount to ordinary income
- Why NUA appreciation is always taxed at long-term capital gains rates regardless of holding period after distribution
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