[USER]

I feel like I’m being silly for asking since we are fairly knowledgable about the stock market and taxes.

But I am going to ask anyway because if there is any chance we are missing something, I want to know about it.

My husband worked for a great company for 20 years with a fantastic stock purchase plan and really great growth over time – yay.

But it’s risky to have so much of our retirement nest egg all in one company’s stock, so we want to diversify and get that money into something more like a Vanguard index fund.

However, it’s costing us a fortune in capital gains taxes (especially as CA residents) just to diversify so that we can take it back out again and pay more taxes later once we need the money to live off.

Is there anything we can do to avoid paying taxes twice? Some kind of roll over into something or…?

[Popo]

Anything within a 401k retirement plan can be traded for another equity like an index fund within the 401k with NO tax consequence until you take the distribution.

If you do a direct rollover from a 401k to a traditional IRA (pre-tax), same situation.

When you take a distribution you pay taxes on the IRA using ordinary income rates.

You pay capital gains on profits from a stock sale in a brokerage account.

[Scott]

I would do do the following. Stop buying into the espp. Or at the very least, cash it out at the moment of reward.

Redirect your investing muscle elsewhere.

Offset your capital gains on your stocks with losses elsewhere.

That’s about it. The tax man cometh….

[Robert]

Not silly at all, this is a smart question and one a lot of people wish they asked sooner. You’re totally right to want to diversify; having too much tied up in one company can be risky.

Unfortunately, there’s no magic way to move that stock into something like a Vanguard fund without paying capital gains tax. But there are ways to soften the blow.

You could sell in chunks over a few years to spread out the tax hit, look for losses in your other investments to offset the gains (tax-loss harvesting), or even donate some appreciated shares to charity for a tax break if that’s part of your plan.

Also, if that company stock is still sitting inside a 401(k), ask about something called Net Unrealized Appreciation (NUA) it’s a special tax rule that could save you a lot if you qualify.

I hope this helps.

[Trevor]

You may pay taxes twice but it won’t be on the same dollars. Once you pay taxes on the employee stock, you will only pay future taxes on any future gains of whatever you invest it in, which is also what would happen with the existing company stock.

Assume your current stock continues to increase 10% per year and your alternative investment also increases 10%. The incremental future tax for the 2 options is the same.

All this is to say don’t let a fear of taxes stop you from reducing this risk.

Tho make sure you understand the tax bracket that would be applied, i.e.

maybe you would be subject to to 20% cap gains bracket and may want to spread the gains out over multiple years.

[Josh]

Talk to a high end CPA.
You can invest into an opportunity fund and if you leave it in long enough.

You can avoid capital gains taxes.

[Gary]

You could buy put options so if they price declines a significant amount you make money.

For example, let’s say the stock is at $100. You buy a “put option”, which means if the price goes down you make money.

Or in your case to hedge losses.

Let’s say for this put option if the price goes below $80 in the next year you make money.

Id the stock goes to $70 you would make money.
Talk with a higher end financial advisor.

[Author]

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