NUA only on Employer Contributions??
Tax Facts on Insurance & Employee Benefits Q. 439 on p. 531 replies to the question on taxation of employer securities distributed from a qualified plan as follows: “…the net unrealized appreciation is excluded from the employee’s income at the time of distribution, to the extent that the securities are attributable to employer and nondeductible employee contributions.”
Is NUA only available on EMPLOYER stock contributions and after-tax EMPLOYEE contributions? In other words, if I purchase employer stock with my pre-tax employee contributions – is that amount excluded for NUA purposes?
Also, if that is the case, how is that determined on the 1099-R? Would the form only include the NUA attributable to employer contributions in box 6?
Thanks for your help with this.
Permalink Submitted by Alan Spross on Wed, 2008-11-05 21:43
NUA is available on the shares purchased with both employer and employee contributions. The key here is that what you refer to as employee contributions are actually considered to be made by the employer on the employee’s behalf. Therefore, employer contributions include employee elective deferrals or contributions. The following is copied from the tax code:
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(2) Qualified cash or deferred arrangement
A qualified cash or deferred arrangement is any arrangement which is part of a profit-sharing or stock bonus plan, a pre-ERISA money purchase plan, or a rural cooperative plan which meets the requirements of subsection (a) –
(A) under which a covered employee may elect to have the employer make payments as contributions to a trust under the plan on behalf of the employee, or to the employee directly in cash;
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As you can see from (A) above, the employee elects to have the employer make payments of their behalf, and the quote from Tax Facts contemplates those contributions as well as those usually referred to as the employer matching contributions.
Not to confuse things further, but there is also a more limited form of NUA available if the employee does NOT take a qualified lump sum distributions (LSD), but the quote in Tax facts contemplates a qualified LSD of the employer shares.