Hi, Chuck. It has been awhile since you last posted here.

Yes, NUA cost basis is the price paid for the shares when purchased in the plan. The funds can be from employee pre tax and post tax salary deferrals, company match, discretionery purchases of Co shares, and dividend reinvestment into more Co shares. The company tracks this basis per share, and usually offers only an average cost over all employer stock shares. However, in some cases the company may offer different cost basis for different lots of company shares, so the employee may have a choice and be able to choose only the lowest cost basis shares for NUA and perhaps just roll over the other shares to an IRA.

Sometimes things get real complex when after tax contributions have been used to purchase the shares. Then you have “plan basis” working in conjunction with NUA cost basis. This does not change the NUA cost basis, but can reduce the taxable cost basis of the shares upon distribution. Since plans have different provisions, it would not be wise to proceed with an LSD for NUA purposes without getting a quote on the NUA cost basis and also an explanation of how after tax contributions to the plan are allocated to company shares.

In this era of mergers and spin offs, note that if you are an employee of Co A, and Co A spins off Co B, you will have NUA potential for both issues for shares that remain in the plan. Each issue would have it’s own NUA cost basis. Often Co B will have the best NUA deal several years later because you will not be purchasing any new shares of Co B if you remain with Co A. The only reason B would change basis then would be if dividends of B were reinvested. With limited new shares B could have a real low basis a couple decades later.

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