Bundling Stock for NUA (Net Unrealized Appreciation)
I am looking to confirm the following or get an answer to a question:
NUA Loss — One client wanted to know if they can declare a loss based on a drop of the original pretax cost basis (prior to issued rom the 401k) vs NUA basis . For example, if the stock was bought in the 401k at 50/ sh and comes out at 10/sh , then $10 is the new NUA basis, with 100% ordinary income (since no growth) owed and there is no offset at this time. In this situation, NUA does not make sense to do.
BUNDLING: can you create an “average” stock price of the the pretax basis and use it for the cost basis for income calcuatlions? It seemsto make sense to have individual stock purchase prices (inside the 401k) so you can do selective selling ahead of time (see next)
SELECTIVE SELLING PRE NUA — it seems a good idea to sell off high cost basis items prior to NUA so that the items that move over have enough NUA vs basis to keep the ordinary income amount due minimized.
Permalink Submitted by Alan Spross on Mon, 2008-02-04 17:52
Robert.
There would be no tax loss if the pre tax employer shares lost value while still in the plan, just that much less available to tax upon distribution. NUA potential would be the first to disappear since it is all composed of gains.
While most plans determine the cost basis using an average cost over all the employer shares, there are a few that provide separated cost figures for various lots within the plan. You are correct that if an employee is in such a plan, he might want to sell the higher cost shares in the plan and use the lower cost basis shares for NUA distribution. It is critical to get a cost basis quote prior to making any decision and to inquire about the nature of the cost basis calculations if the plan does not account on an average cost basis.