NUA question
I have a client who did NUA last month and decided that the taxes are more then he wants to pay. He wants to take his highest cost shares and do a 60 day rollover to his rollover IRA. I do not think it is allowable under IRS code, but he seems to think it is possible. Does anyone have any experience with undoing part of a NUA distribution?
Permalink Submitted by mk foss on Sat, 2009-01-31 02:54
I don’t have experience in undoing the NUA transaction but logically, any distribution from a qualified plan can be rolled to an IRA within 60 days.
The “highest cost shares” is confusing unless there was more than one qualifed plan from which NUA shares were received. The regulations indicate that you use the average cost of the shares in the plan for the cost of the NUA shares so each share would have the same cost from the same plan.
Permalink Submitted by Steven Coppola on Sat, 2009-01-31 20:05
I told him that he must use the average cost, but a hr rep told him to use specific share identification for his cost basis method.
Permalink Submitted by Alan Spross on Sun, 2009-02-01 05:17
I do not believe that specific share cost basis can be used to shares distributed to the taxpayer. The amount of NUA shown in Box 6 of the 1099R is a flat dollar amount that must apply equally per share.
If the plan accounts for various lots, the higher cost basis lots can be selected for sale within the plan OR for direct rollover to an IRA leaving behind a pool of lower cost basis shares for distribution. Most plans do not allow even for this segregation and require average cost accounting throughout. If the employee wants to select shares for rollover, it needs to be done prior to the distribution of NUA shares to the employee.
This does not mean that the employee could not receive shares consisting of an average cost basis and average NUA per share and select some of them for an indirect rollover to reduce the total current tax bill. But at this point the shares rolled over and the shares retained for NUA would contain the same average cost basis and NUA per share.