After-Tax and NUA

Submitted by Ryan Dignum on Mon, 2016-04-18 19:09

I currently have after-tax contributions, before tax contributions, and company match contributions in my 401(k). My 401(k) has approximately 70% of the value allocated to company stock. Is it possibly to elect NUA as well as roll my after-tax contributions to a Roth IRA? If so how would the ordering of distributions occur? Do I need to have the amount of after-tax contributions, before tax contributions, and employer match that was used to purchase the employer stock?

Thanks for your assistance.



Submitted by Alan - IRA critic on Mon, 2016-04-18 19:57

  • You would first have to find out how much of your after tax contributions are assigned to employer shares. This amount cannot be used for both a Roth rollover and NUA distribution, so you would have to determine which has priority. Probably better to give the Roth priority and therefore you would request a single distribution to different destinations as follows:  Total after tax amount in your plan to Roth IRA, remainder of employer stock to taxable brokerage, and the balance of the plan to a rollover TIRA.
  • Since the Roth had priority, your cost basis for the NUA shares would be 100% taxable, but that would be the only tax due for the full distributions.
  • I would be careful with lack of diversification here unless you have far more assets besides this plan. If some company shares went to the Roth because they were purchased with after tax money, you could sell those shares after the distribution in the Roth with no tax consequence. For the NUA shares, you would just need decide how long to hold them. Of course, you would also get a quote on your NUA cost basis as a % of the total shares market value. That % should be low, probably no more than 30% unless you need to cash out some of your 401k anyway.


Submitted by Ryan Dignum on Tue, 2016-04-19 20:06

Alan, thanks for your comments but I am slightly confused by your second bullet point.  I am going to put some numbers to paper to ensure I am on the same page.My total account value $775,333.  Lifestyle fund: $232,242.  Employer stock: $543,091.  Basis in employer stock: $272,478.  After-tax post 1986 contributions (included in the basis in employer stock): $68,269.  Below is where I am thinking the dollars will move:$68,269 – Roth IRA.$474,822 – Non-qualified account (with an ordinary income of $204,209)$232,242 –Traditional IRA.Thanks again. 



Submitted by Alan - IRA critic on Tue, 2016-04-19 21:29

  • I am going by the assumption that the plan will use per share accounting. The shares being sent to the Roth IRA still are composed of around 50% basis and 50% NUA, both of which are forfeited in favor of having the after tax amount applied to them. Therefore, the 474,822 going to taxable brokerage no longer include the approximate NUA cost basis of 34,000 and NUA of 34,000. The NUA cost basis of those shares would then be around 272,478 less 34,000 or around 238,478. In other words, the shares actually being used for NUA will still be composed of about 50% cost basis and 50% NUA, just like all the original shares.
  • My second bullet point above stated another way was that since the entire after tax contribution amount was used to make the Roth rollover non taxable, the remaining shares have no after tax component, just NUA cost basis component and NUA component based on per share amounts. The cost basis portion is fully taxable at ordinary income rates. Also, the shares rolled to the Roth reduced the remaining gross cost basis and NUA amounts in the shares to be used for NUA, but the per share amounts remain the same.
  • Perhaps you can get a better idea of what the 1099R for the shares distribution will look like. I expect you would get two 1099R forms in total, with the TIRA and Roth IRA direct rollovers combined with nothing taxable in Box 2a.


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