NUA / Age 55 401k penalty

Submitted by MIKE KRUCHTEN on Thu, 2020-09-24 15:29

I have a client retiring at year end, his NUA situation is very very good. Has basis is 25k with 500k market value. His intent is to move 100% of the company stock to a Brokerage account and he understands he will pay Federal OI tax on the basis and has no need for the funds short term.

I’m under the impression if he did have a cash need any shares purchased before 1 year L/T cap gain rates apply and not 1 year from NUA transaction date.

I’m also under the impression the basis amount being distributed ($25,000) is not subject to the 10% early withdrawal rule since client will be 57 years old on his retirement date in Dec 2020.



Submitted by Alan - IRA critic on Fri, 2020-09-25 00:59

  1. All shares sold immediately after distribution are eligible for the LT cap gain rate up to the distribution value. It is only additional gain after distribution that is treated as short term if the share is sold within the first 12 months.
  2. You are correct that the separation from service at 55 or later penalty exception applies to the ordinary income tax due on the 25k cost value. There is no penalty.

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