NUA and common collective trusts
I understand how an NUA works, but I’m not sure my plan qualifies.
My company contributes all of the 401k match in company stock. However, participants do not have shares of company stock, but rather shares of a common collective trust at Fidelity that holds the cmpany stock and a small amount of cash.
Since the plan does not directly allow ownership of shares, does this qualify?
Also, my company is a spin off. I have share of the predecessor in that 401k. I worked for them when the shares were acquired in the 401k, but they are not my current employer. Do these qualify, or since they are no longer my employer, have I been had by a technicality?
Permalink Submitted by Alan Spross on Sat, 2008-07-05 22:55
The company stock fund, usually tracked in participation units, is normally eligible for NUA following an LSD. The fund would have to transfer the equivalent number of shares to a taxable account. However, to be sure this is the case, you should ask the plan administrator.
There is also good news for the shares of your former employer. Since they were acquired when you were an employee, they are NUA eligible as well as the shares of your current employer. Due to mergers, spin offs etc many long term employees have NUA potential from a number of different stocks held in their plan. Since the earliest shares have been held the longest, and they are not being currently acquired at current market prices, they often carry the lowest % of cost basis. In your situation you should have the option of selecting NUA for one of the stocks but not for the other.
Permalink Submitted by Mark Eckman on Sun, 2008-07-06 18:19
Remembering President Regan’s advice to trust, but verify, might you have a citation for either of those answers?
Permalink Submitted by Al Fry on Mon, 2008-07-07 00:22
You won’t need one.
Permalink Submitted by Mark Eckman on Mon, 2008-07-07 14:50
True, but the gap between “want” and “need” is never filled for CPAs like myself. The audit mentality never dies.
Permalink Submitted by Alan Spross on Mon, 2008-07-07 17:07
Ultimately, the plan administrator issues the 1099R forms showing an NUA distribution, and may be aware of specific details in the plan and/or the mergers that would affect NUA distribution. That’s why I indicated “normally” with respect to the stock fund. Certainly, the equivalent number of employer shares would need to be distributed out of a unitized fund that holds some cash or cash equivalents to enable liquidity for distributions, dividend reinvestments etc.
I suggest writing to the plan administrator with your specific questions and they are obligated to answer them for you. NUA is not an “all or none” situation, even if there is only one stock issue in the plan. For example, if the plan uses an average cost basis as most of them do, you must use that basis, but you can still sell a number of shares in the plan for diversification or other purposes or have a number transferred to an IRA and the rest to the taxable account for NUA. However, you MUST have a proper lump sum distribution in a single year of all plans of a similar type in order to be able to ulitize NUA.
FIdelity used to have an excellent NUA study available on line, but they pulled it a couple months ago, but if they are the administrators, they should be up to speed on these issues.