NUA Distribution
I am age 52, I will be executing a LSD from my 401(k). I have approximately $5,5000 as the cost basis for the stock for a NUA distribution. If I sell this stock immediately,I will pay ordinary income tax on the sale, because it will be a short term gain. But,I will avoid the 10 % penalty. Is this correct?
Permalink Submitted by Alan - IRA critic on Thu, 2015-02-19 23:58
If you do a qualified LSD and receive the appropriate 1099R, and then sell the shares, all gain over the cost basis per share at the time of distribution up to the value on the distribution date will be LT. Additional gains after the distribution will be ST if you sell within a year, LT if you sell after a year. Only the cost basis per share (Box 2a divided by the # of shares less any after tax contribution allocated to the shares) will be taxable in the year of the LSD at ordinary income rates. The penalty of 10% will apply to the taxable cost basis (2a). There is no penalty on any of the ST or LT gains from selling the shares.