Taxation of Retirement Distributions

What this video covers

• Why pre-tax contributions always come out taxed as ordinary income, and why after-tax contributions come out tax-free to the extent of basis
• How the pro-rata rule pools all traditional individual retirement arrangements (IRAs), simplified employee pension (SEP) IRAs, and savings incentive match plan for employees (SIMPLE) IRAs into a single blended ratio
• Why a customer cannot cherry-pick after-tax dollars from a traditional IRA for a tax-free withdrawal, and how to calculate the taxable percentage of any distribution
• How the backdoor Roth conversion triggers pro-rata taxation when pre-tax IRA money exists in other accounts
• What net unrealized appreciation (NUA) is and why it allows employer stock appreciation to be taxed at long-term capital gains rates instead of ordinary income rates
• The three strict NUA requirements: lump-sum distribution, qualifying event trigger, and in-kind transfer of shares (not cash)
• Why selling employer stock inside the plan before distribution permanently destroys NUA treatment