NUA Tax Question

Submitted by Jeffrey Truchon on Thu, 2019-06-13 18:13

Looking to clarify the tax basis and tax consequences for a potential client who distributed company stock from a qualified savings plan to a brokerage account back in 2007. The distribution sheet reads:

Total Distribution – $59,479.66
Return of After-Tax Contributions – $31,890.34
Total Taxable Amount – $13.89
Ordinary Income Amount – $13.89
Eligible for Rollover – $27,589.32

The stock information section of the distribution sheet shows 1,266 shares redeemed with a $24.01 basis per share for a distribution basis of $20,296.66 and NUA of $27,079.74.

This is my first time coming across this scenario. My understanding of the NUA rule is that by moving the money to a brokerage account, the distribution basis is considered taxable at earned income rates but the NUA and any further appreciation is taxable at capital gains rates. Is this accurate? And does the fact that after-tax contributions were made impact the basis at all? Sorry to be long winded, want to try and get a solid understanding by providing as much information as possible.

Thank you!



Submitted by David Mertz on Thu, 2019-06-13 19:42

  • Regarding your questions in the last paragraph of your post, the NUA is treated as long-term capital gain.  Subsequent gain would also be long-term capital gain if the shares were held for at least one year after the NUA distribution, otherwise it would be short-term capital gain.  The amount of the 2007 distribution that was after-tax only affects the amount that was taxable on the client’s 2007 tax return and has no effect on the amount of basis in the NUA shares.
  • Regarding other things in your post, it’s company shares, not money, that would have been moved to the brokerage account.  (I think that’s what you meant to say in your last paragraph.) If instead the NUA shares were sold and the proceeds of the sale were put into the brokerage account, the NUA shares are gone.
  • $20,296.66 seems to be a typo.  1266 shares with an average basis per share of $24.01 would be $30,396.66 of total basis in NUA shares.
  • Regarding the other numbers (used by the client to prepare the client’s 2007 tax return), the amount shown as eligible for rollover is the amount shown as the total distribution amount minus the amount shown as the after-tax amount, but this would only be the limit for rollover if it was an indirect rollover to another qualified retirement plan because a qualified retirement plan only accept the rollover of after-tax amounts by direct rollover.  The after-tax amount *is* eligible for indirect rollover to an IRA or roll over to another qualified retirement plan by direct rollover.  Of course the NUA shares can’t be rolled over if they are to receive NUA treatment, but it seems that the amount indicated as the amount eligible for rollover assumes that NUA treatment is declined.  I can’t see where an amount taxable in 2007 of $13.89 comes from.  Assuming that no designated Roth account is involved, $59,479.66 minus $27,079.74 of NUA minus $31,890.34 after-tax leaves $509.58 taxable unless some portion of that was directly rolled over to another qualified retirement account.

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