NUA Cost basis for company merger
As you are probably aware Aetna has tendered an offer of 37 billion to purchase Humana.
I currently own a large portion of Humana company stock. If I retire after the deal is closed – sometime in the 2nd half of 2016, how will the cost basis be determined?
Is this a case by case method or are there rules governing such actions? I currentlly have a cost basis of around $99,000.00. Aetna stated that each Humana share would receive $125 cash plus .8375 Aetna share after the closing.
Permalink Submitted by Alan - IRA critic on Thu, 2015-07-09 20:54
The cost basis amount plus any new purchases of Humana and/or Aetna shares prior to retirement should transfer to the surviving Aetna shares. However, the cash payout amount poses a problem as it is coming from a liquidation of some of your Humana shares for cash instead of replacement Aetna shares. Since the cash reduces the amount of Aetna shares you will receive, I think your cost basis will be reduced proportionately (look at it as selling some of your Humana shares with their cost basis back to the plan to raise the cash). If you are sure that NUA benefits you, if you can possibly get an explanation from the plan (may not be possible for quite awhile) how they would calculate your new cost basis due to the cash component, you might consider retiring sooner and completing the LSD before the conversion.
Permalink Submitted by Gil Shifrin on Mon, 2016-06-20 14:42
According to you I will have about 45% in Aetna unitized fund and 55% in cash? Is that correct? When I execute the NUA is the stock portion only eligible for NUA. The cash portion has to be move to an IRA account just like my other investments under my 401K?
Permalink Submitted by Alan - IRA critic on Tue, 2016-06-21 00:34
Yes, the cash would be included with the IRA direct rollover money. NUA would be limited to the Aetna shares actually distributed. The cost basis for those shares should be based on 45% of your prior cost basis. Your cost basis % as a portion of total value should not change, but the net affect is that your NUA amount is also reduced to 45%. I would confirm all this with the plan if the deal actually closes. The other option is to retire before the deal closes if possible and get the lump sum distribution completed before the deal closes since that would preserve NUA on the full value of the Humana shares at the time of the distribution. If your cost basis is 99k, be sure the current value is around 3 times that to make NUA worthwhile.
Permalink Submitted by Gil Shifrin on Tue, 2016-06-21 18:58
Thanks. Total value is more than 3 times – a current value of $450,000.I really wanted a larger amount of NUA so I would have 3 different large buckets at retirement time: Tax free (Roth and HSA) – Tax deferred – Trad IRA and taxable (NUA). This gave me a lot of flexibility with regards to taxes in my retirement years. I will continue to monitor – no final decision when I will execute the NUA.Thanks again.