NUA
Jim is a former Raytheon employee who is transferring his 401(k) into an IRA. One of the holdings in the 401(k) is the Raytheon stock fund with a value of about $51K. If my understanding is correct, he should find out the basis of the stock fund. We would then take the stock out of the 401(k) and hold it in a non-qualified account. If he sells the stock immediately, he will owe capital gains tax on the difference between the selling price and the basis. Am I overlooking anything?
Permalink Submitted by Alan - IRA critic on Fri, 2016-10-07 23:38
Yes, he should get a quote from the plan on the cost basis per share. While NUA is rarely beneficial if the cost basis is over 30% of the FMV, if the Jim needs the money now and would be taking a plan distribution anyway, the 30% can be ignored. If he decides to proceed, he must be sure to complete a full LSD from the plan and similar plans of the employer (the DB plan does not count). For the taxable cost basis, he will also owe a 10% penalty unless he is over 59.5 or qualifies for the age 55 separation from service exception. As for holding large amounts of one issue, planning to sell is a good idea since diversification should take priority over tax breaks.