Moving Highly appreciated stock in 401(K) into Brokerage
Prior 401(k) had funds and Stock(highly appreciated). Rolled over liquidated funds into IRA. Moved Stock into seperate Non Qual brokerage account June 2009 for NUA. Would we report the stock,total cost basis approx 25K on the 2009 return when it was moved to the NQ brokerage account? Or on the 2010 return. When the funds are later sold do they pay taxes on the stepped up value(the difference)?
Thank you
Permalink Submitted by mk foss on Fri, 2010-03-19 16:56
If they qualified for NUA treatment, they should have a 1099R from the 401k administrator showing the “plan cost” of the shares as being taxable in 2009. When the shares are sold in 2010, the gain up to the NUA from the distribution is treated as long-term capital gain. If the stock is sold for more than the NUA, there could be short term gain if the stock was sold less than one year after the transfer. If the stock is worth less when sold in 2010 than the value at the distribution date, the long term gain will be the actual gain.
Example, stock worth $100 per share when distributed in June 2009 – plan cost is $30. If only 1 share is transferred, the ordinary income in 2009 is $30. If the stock is sold in March 2010 for $120. There is $70 of long-term gain and $20 of short term gain. If stock is sold for $120 in September 2010, it’s all long term gain. If stock is sold for $80 at any time during 2010, there is long term gain of $50.