NUA
Situational question for NUA:
260K basis for common stock 63,305 shares in 401K
The person pays the taxes on the 260K cost basis and moves the shares into his brokerage or non-qualified account.
On the day the stock is delivered from the 401K to the non-qualified account the common shares close at a price of $18.09.
My question is…What is his cost basis on the 63,000 shares that are now held in his non-qualified account?? Do all of the 63,000 shares assume a $18.09 cost and what is the tax treatment upon the sale of all or a portion of the stock?? I believe his basis is $18.09 on only 14,372 shares, which I got by dividing his basis of 260K by the share price of 18.09, but I’m not quite sure?? Also, if I’m correct with that what is the basis on the balance of 48933 shares that are now in the non-qualfied account. For some reason I just can’t put my arms around this topic and was hoping for some logical response to my question. Thanks!!
Permalink Submitted by Alan Spross on Fri, 2008-04-25 21:45
260,000/63,305 shares equals a cost basis of $4.107 per share.
Value at distribution is 18.09 per share meaning that the NUA at time of distribution is 18.09 less 4.107 or 13.983 per share. This is based on average cost accounting as used by most plans. However, the former employee needs to be sure that average cost and not some other accounting method such as specific share costs were used instead.
If average cost was used all the shares have the same cost basis and your math does not apply. When the shares are sold the amount of gain in excess of 4.107 per share gets the LT cap gain rate. The exception to that is if shares are sold for more than 18.09 in the first year after distribution, the LT rate applies up to 18.09 and the ST rate applies to values in excess of 18.09 per share. If the share price drops below 18.09 per share, the effect is that the NUA per share is reduced.
These amounts should be checked against the 1099R the plan will issue after the LSD year. For example, the plan may report using the median share price on the day of distribution rather than the closing price.
Any NUA still held when the employee passes does NOT get a step up in basis as it is deemed to be IRD. Amounts in excess of 19.09 WOULD get a step up in basis.