Process of NUA
I have a client who is 56 years old, still employed, has a 401k of approx $750,000, of which $285,000 is in company stock. We called the plan provider to ask the various in-service rollovers.
He is allowed to take 100% of his employee stock (with a cost basis of $185,000). However, the plan representative stated that since he is still an employee he does not qualify for NUA. However, he would receive the shares in kind and receive a 1099. My question is if that is the case, than technically isnt that NUA?
Permalink Submitted by Alan Spross on Tue, 2012-09-25 19:15
To utilize NUA, there must be a triggering event followed by a qualified lump sum distribution.
Triggering events are separation from service, reaching 59.5, or death. Perhaps the plan is indicating that the client does not have a triggering event, and therefore cannot utilize NUA. The plan would then issue a 1099R and not show any NUA value.
In addition, a cost basis for NUA shares of 65% makes NUA generally a poor choice. The exception would be if client needed cash right away, paying the lower LT cap gain on the sale of shares will have a lower tax bill than paying ordinary income tax on the full value.
Client needs to get this resolved before acting.