401k

Submitted by Richard P. Musko on Thu, 2015-01-08 16:51

Client under liquidated 401k and took advantage of net unrealized appreciation (NUA).
NUA stock moved to personal brokerage which also contained same company stock as the NUA stock.
What are the tax and/or penalty cost consequences:
1. Of the receipt of the NUA stock
2. Dividends received on NUA stock
3. Sale of NUA: prior to 12 months from transfer
After 12 months from transfer
4. Which shares of the mix of stocks in the account (have both NUA and same non-NUA stocks) would be considered sold first.
5. Can client setup 72T with non-NUA rollover amounts.



Submitted by Alan - IRA critic on Thu, 2015-01-08 17:47

  1. When the shares were distributed from the 401k, client will have to report ordinary income for the cost basis of the shares. The cost basis will have to be provided to the broker so that these NUA shares are tracked separately from the other company shares. When he sells the NUA shares, he will have to use specific share identification so the 1099B is correct.
  2. Dividends will be treated as any other dividends, whether qualified or non qualified. He should avoid reinvesting them in more shares.
  3. Up to the NUA per share, the gains are taxed as long term capital gains. Gains in excess of the value per share when distributed from the plan are taxed at short term rates if sold in the first year. After 12 months, all gains are long term.
  4. He can sell the shares he wants to sell, and that will allow him to control his cap gains. Again, he should opt for specific share ID when selling so he will know what cost basis will be used on Form 8949/Sch D. He should avoid using the broker’s default method.
  5. Yes, 72t can be established from any of his IRA accounts. This is not affected by the taxable brokerage account, although perhaps he can live off the NUA share sales or use those shares for emergency needs to avoid busting the 72t plan.

Submitted by Richard P. Musko on Mon, 2015-01-12 21:24

 Taxpayerage 55 retires and rolls out his 401k plan to 0 . NUS  stock to personal brokerage account and remainder to rollover IRA account . NUA is subject to regular tax.Is the NUA cost basis  subject to  the 10 % since taxpayer is under age 59and a half  

Submitted by Alan - IRA critic on Mon, 2015-01-12 21:33

Probably no penalty. If he separates in the year he reaches 55 or later, there is a penalty exception for that.

Submitted by Kermit Griner on Tue, 2018-04-03 21:59

I have a client separating from employment 04/30/2018 He has $379,778 in company owned stock. His NUA is $162,138.  He has no after tax cash to pkay the tax, what would be best strategy?  Do the NUA or just roll it over to an IRA?

Submitted by Kermit Griner on Tue, 2018-04-03 21:59

I have a client separating from employment 04/30/2018 He has $379,778 in company owned stock. His NUA is $162,138.  He has no after tax cash to pkay the tax, what would be best strategy?  Do the NUA or just roll it over to an IRA?

Submitted by Alan - IRA critic on Tue, 2018-04-03 22:10

With a cost basis of around 57%, client would be better off rolling the shares over and selling enough shares to be properly diversified. The only exception that might apply would be if he needs funds from this retirement plan within the next year for expenses and he is separating at 55 or later. After determining how much he needs from the plan, he could have shares with a total value transferred to his taxable brokerage account, and sell them to cover the expenses. He would have no penalty on the cost basis due to separation at 55 and his NUA would be taxed at the lower LT Cap gain rate. The rest of the company shares could be rolled to an IRA or sold in the plan first. If there is any after tax money in the plan, that provides another opportunity in properly applying it. Usually, NUA is most useful when the cost basis is less than 30%, so the cost basis here is not even close. 

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