Holding Period – NUA stock
Good morning,
We counseled a client to use the NUA provision concerning the rollover of their 401K. The stock was received in good order and placed ‘in kind’ to their taxable brokerage account.
The question – Are the gains treated as long-term if the stock is sold immediately? Or are we resetting the holding period and would be required to hold the stock for a one-year period following receipt in order to qualify for LT gain treatment?
Second question – concerning the gains FOLLOWING receipt of the stock, what are the tax considerations for those gains? Are they any different? I sense that there are two ‘buckets’ of gains to be computed upon sale… one based on the initial NUA and the other based on the appreciation after the stock is received… true? How would the second ‘bucket’ be taxed…. capital gains based on the holding period… either short-term or long-term?
Thank you in advance,
Chris
Permalink Submitted by Alan - IRA critic on Fri, 2013-10-04 20:30
The amount of NUA at the time of distribution (reflected on the 1099R) is taxed at the LT cap gain regardless of when the shares are sold. You are correct about the gains occurring after distribution. Those additional gains are taxed at ST rates if shares are sold within one year of distribution. After one year the additional gains are also taxed at LT rates. Losses occurring after distribution just reduce the amount of NUA per share.
Permalink Submitted by Christopher Lamb on Sat, 2013-10-05 01:31
Thanks Alan. Great information as always.