NUA Procedure

Submitted by Andrew Rogers on Tue, 2017-10-31 17:51

The following NUA needs executed:

401k –
$1,000,000 in company stock
$300,000 in misc mutual funds

I know they need split and must be done within the same calendar year. However, is there a rule to what must be done first? My assumption is we’ll need to do a partial rollover of the $300,000 in mutual funds followed by a withdrawal of the company stock. However, we’d like to keep the company stock transferred in kind because of splitting it out over years to cut down on capital gains taxes. Additionally, is the withdrawal of funds just done as a withdrawal transfer but requested to just transfer the investments?

Andrew



Submitted by Alan - IRA critic on Tue, 2017-10-31 18:14

  • As long as the entire account balance including other similar plans of the employer (eg ESOP) are distributed by the end of the year that the NUA shares are distributed, it will be a qualified LSD for NUA purposes. There is no particular order required.
  • The mutual funds (unless proprietary funds that the IRA custodian cannot hold) can be distributed as a partial direct rollover to your IRA. If you have made any after tax contributions to this plan, be sure to determine how the plan applies this amount (to the MFs, to the employer shares, or both). You may want a split direct rollover with the after tax contributions sent to your Roth IRA.
  • Not sure what you meant regarding the company stock and cap gains taxes. To use NUA you have to distribute the shares in kind (even if the plan requires you immediately sell them back to the plan). Most plans use average cost basis accounting for all your shares and any reinvested dividends, but if your company splits out certain lots to their actual costs, you might want to use the lowest cost shares for NUA, and sell or rollover the highest cost shares and not apply NUA to them. The shares distributed to your taxable brokerage account can be sold anytime, with the amount of NUA per share taxed at the lower LT CG rates. You should generally place more emphasis on proper diversification than on tax benefits, meaning you might sell shares sooner despite accelerating the cap gain taxes, rather than continuing to hold too much in these shares for too long.

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