Can I do this?

L1: Can I do this?Hello, for reasons that it would take several pages to describe, I need to cashout a 401K ( penalty free because I am age 56 and retired) and pay the taxes. ALSO, in the same year, I need to start a 72T on my traditional Ira in a separate brokerage firm. Will this throw up a red flag at all to the IRS.??? Can I do this? Thanks a million!!! ( wish I had it)2008-12-15 17:06, By: Theresa, IP: [206.83.53.249]
L2: Can I do this?There is no problem with taking a taxable distribution from a qualified plan while you are also taking 72t distributions from your IRA. However, with respect to the 401k plan, your direct distribution from that plan is only penalty free if you separated from service in the year you reached 55 or later. If you separated sooner, you cannot just wait until 55 and get penalty free distributions.One challenge since you may be starting this early in 2009 is that you will have a large taxable distribution from the total of the two plans in 2009. If you have not been working in 2008 or your income will be split better, perhaps you should try to get the 401k distribution done this year. If you are going to cash out the 401k plan, check to see if there is any highly appreciated employer stock in the plan. By using NUA, you will only pay the lower LT cap gain rate on the appreciation amount in the shares and that rate is much lower than the ordinary income rate.2008-12-15 21:12, By: Alan S., IP: [24.116.165.60]

L2: Can I do this?Wow, thanks for that info. I do meet all the criteria for the 401K cash out. As far as NUA, I do have a LESOP1 and a LESOP2, and its odd, but the cost basis on these 2 sums basically cancel each other out, because the basis for one is lower by about the same amount as the basis for the other is higher. So its a wash, right? 2008-12-16 06:46, By: Theresa, IP: [76.30.75.188]

L2: Can I do this?I’m not familiar with the “L” in front of the ESOP designations.The NUA provisions refer to employer stock in employer-sponsored retirement plans. I’m not sure if ESOPs come under this same category. Usually it applies to pension and profit-sharing plans. Ask your employer.If ESOPs are included, then you are probably correct because you must take a lump-sum distribution of all similar types of plans. However, it is possible that you might still benefit from the NUA provisons of plan 1, while not benefitting from plan 2, but not offsetting the net results either. This would take significant research.2008-12-16 12:11, By: dlzallestaxes, IP: [96.245.168.66]

L3: Can I do this?The “L” in front of the ESOP stands for a Leveraged ESOP. (Refer to the link “http://www.investopedia.com/terms/l/LESOP.asp” on the Investopedia.com site.) From their site “Typically, companies choose to use stock ownership plans or equity
compensation systems in order to tie a portion of their employees’
interests to the bottom-line share price performance of the company’s
stock. In this way, all employees who participate in the plan have an
incentive to make sure the company’s operations run as smoothly as
possible. By leveraging the company’s assets to fuel a LESOP plan, the
business is able to provide for its stock ownership plan without
immediately putting up all the capital required to do so.”Does this affect the NUA provision?2008-12-22 00:53, By: Red05Z51, IP: [70.12.52.147]

L4: Can I do this?No, since the shares distributed in an LSD are not encumbered. However, the two accounts warrants some explanation from the plan administrator. Some plans account separately for the cost basis of different lots or different classes of shares, and that may allow the taxpayerto selectonly the lowest cost basis shares for NUA, and selling the others in the plan or transferring themto an IRA.2008-12-22 04:17, By: Alan S., IP: [24.116.165.60]