NUA questions

Submitted by fairira on Thu, 2016-12-22 19:08

1. A 51-year old CBS employee acquired Restricted Stock Units (RSU’s) of CBS stock over the last 10 years and paid income tax as each RSU vested and paid also on the subsequent dividends which were reinvested. He is about to be terminated. The unrealized appreciation on all his shares is ~ $27,000.

Q. 1.: Since he already paid income tax on these shares, does NUA have any applicability?

2. In his CBS 401(k) he also holds many pretax units/shares of the CBS Class B Company Stock FUND including company matches and he also has some post-tax Roth 401(k) units/shares.

Q. 2.: Does NUA have any applicability?



Submitted by Alan - IRA critic on Thu, 2016-12-22 22:13

  • RSUs are not qualified plans, so are not eligible for NUA. Besides, they already get cap gains treatment upon sale. I think termination results in forfeiture of unvested units.
  • If he does a qualified lump sum distribution of all plans of similar type, he should be eligible for NUA for 401k company shares or company share stock funds. He should get a cost basis quote before requesting that the shares be distributed in kind to a taxable brokerage account. His cost basis per share may not be low enough to warrant using NUA.
  • Roth 401k amounts should not utilize NUA because the Roth assets will eventually be totally tax free. If he rolls over the Roth 401k to a Roth IRA, there are no taxes due, and he will then get the more favorable Roth IRA ordering rules for any distributions (earnings come out last), and there will be no RMDs.
  • Remember that diversification always trumps tax benefits, and holding too much of a single holding is risky.

Submitted by fairira on Fri, 2016-12-23 06:16

Thank you, Alan.Does he have to wait until his 55th birthday to do the qualified lump sum distribution in which he would probably roll over his high-cost shares to a TIRA and then distribute his low-cost shares to his personal brokerage account, assuming his present employer would permit this 4 years after his termnination?

Submitted by Alan - IRA critic on Fri, 2016-12-23 17:59

He does not have to wait until 55 to take the LSD, but if he retires before the year he turns 55 he will owe the 10% penalty on the taxable cost basis. The employer must allow the lump sum distribution to be done anytime after separation from service, but if there are any years in between in which a partial distribution was taken, the LSD will not be qualified. Being able to account for different lots of shares at different cost basis points is a function of plan accounting. Most plans use an average cost basis for all shares, but some do allow for shares to be selected with lower cost basis per share for NUA purposes.

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