Net unrealized appreciation scenario
Here are the particulars. It’s an old 401k plan and not where he works now.
client bought PNC stock inside of 401k with cost basis of $32,000.
The value of the stock within the 401k is now at $125,000,
Gain of $93,000
I feel this would be a good scenario for the NUA rule?
He make approx. 200k in income and with bonuses and cash comes in around $300k
Would he pay capital gains of 15-20% on the $93,000 of gain?
or…
Does the 93k go to his bottom line income?
Can he transfer half of the PNC stoke into a brokerage account and then the other half in 2022?
Thank you for any information.
Douglas
Permalink Submitted by Alan - IRA critic on Tue, 2021-05-25 02:41
A cost basis of 25.6% is neither low enough for NUA or too high. Whether NUA makes sense depends on several other factors. Whether married or single, the taxable income would not trigger the 20% rate, just 15%, but if all the shares were sold in a single year, taxable income could get close to the 20% tier. Of course, the shares can be sold anytime after the LSD.
Use of NUA requires a qualified lump sum distribution (LSD) in a single year. Therefore, all the shares as well as the rest of the 401k must be distributed in a single year or NUA is forfeited.