Company stock transfer to non-qualified brokerage

Submitted by Pamela Prine on Thu, 2020-05-21 04:26

I have a client who is over 59 1/2 and separated from service from his employer. He has met the triggers as he will be rolling over his entire 401k plan (less his company stock) as well as his retirement pension plan to an IRA. The company stock would be transferred in-kind to a nonqualified brokerage account. Of the $100k of company stock, $50K is the cost basis. Can the entire $100k of company stock be transferred in kind to a non-qualified brokerage account without causing a taxable event? I thought the answer was yes as long as the 3 triggers were met but in doing more research it looks like he can transfer it all in kind but will have to pay ordinary income tax on the basis while keeping the NUA in the brokerage account indefinitely until its sold – at which point he will pay long-term capitals gains.

Can anyone give me clarification?



Submitted by Alan - IRA critic on Thu, 2020-05-21 14:56

  • Basically correct, but a cost basis of 50% is very high to make NUA worthwhile unless the client needs all 100k for expense needs in the near future, in which case he would also be selling those shares and paying the lower Cap gains rates on the NUA.  Therefore, in most cases the client would be better off rolling the shares over to an IRA where they can be sold with no tax impact. Despite distribution to the brokerage account, he can still roll the shares over within 60 days and avoid ordinary tax on 50,000, the cost basis of the shares.
  • But it’s simpler to avoid the share distribution in the first place and either sell the shares in the plan or have them included in the direct rollover to an IRA. That would eliminate a more complex tax reporting when he would have receive a 1099R with NUA and taxable cost basis, but report a rollover instead and having to deal with an in kind rollover. Doing the rollover after the shares have been distributed is more of a hassle and is usually done only after someone has second thoughts about NUA.
  • If these shares are dropped alot due to the bear market and are expected to recover, NUA could eventually be worthwhile. For example, if the NUA shares gained 50% over the next couple of years, then the cost basis % drops to 33% of share value, which even then is still on the high side of NUA viability. 
  • Diversification needs should also be kept in mind and should trump tax benefits. What is the outlook for these shares post Covid?  If rolled over the shares can be sold immediately with no current tax impact.
  • Finally, appreciated employer shares can be partially rolled over and partially distributed. He should be able to have only half the shares distributed and would then be taxed on 25000 at ordinary income rates and would have 25000 of NUA at present. It’s not an all or nothing choice.

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