NUA, can you do a partial stock distribution?

Submitted by Jack Thomas on Wed, 2015-02-25 12:46

Although it appears the rules on this might be changing, in the meantime, can you take advantage of NUA with only a portion of company stock? Still taking out the entire balance of a retirement plan through rollover and distribution of company stock to a taxable brokerage account, but rolling over some of the company stock to the IRA.

For example, say a person has 500K in a 401k. 100k of that is company stock. Could they rollover 400k into an IRA along with 50k of the company stock into the IRA, then distribute the remaining 50k of company stock to a brokerage account to take advantage of the NUA treatment. Or do they have to do the entire 100k of the company into the taxable brokerage account for this to work?

Thanks.



Submitted by Alan - IRA critic on Thu, 2015-02-26 02:06

As long as a qualified LSD is done, the person can request any partial amount of employer shares to be transferred to a taxable brokerage account. In this example of 100k of employer shares, the person should inquire if the plan uses average cost basis accounting or has broken done the cost basis by lots. If there are different cost basis figures for these lots, the person should request that the 50k with the lowest cost basis be used for NUA, with the higher cost basis shares going to the IRA.

Submitted by Jack Thomas on Thu, 2015-02-26 14:39

Thanks so much.  I searched high and low through IRS docs to try and figure this out before positng the question on the forum.  Very helpful as usual.Just out of curiosity, where is this found in IRS publications that you can do partial liquidations of company stock while rolling over the rest to an IRA?Thanks again. 

Submitted by Alan - IRA critic on Thu, 2015-02-26 16:00

  • Several options for Rollovers are included in the Rollover Section of Pub 575. This article also provides a thorough explanation of NUA:  http://www.csa.us/www/wp-content/uploads/Docs/NUA-FPAJournal.pdf
  • Note that some or all of the company shares can be sold in the plan before the distribution and the proceeds included in the IRA rollover. That would leave fewer shares for NUA purposes. But the employee also has the option to reconsider NUA even after they receive all the company shares. This is still an eligible rollover distribution and the employee could do a 60 day rollover of the shares to an IRA or any partial amount of shares he wishes. Or he could sell shares and roll over the proceeds from the sale of those shares, but he cannot use NUA on shares sold when the proceeds are then rolled over.

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