NUA Question
Client has 401(k) all in company stock. Company stock has been purchased with some lots having low cost basis and some having higher cost basis. Is the 401(k) provider required to keep the cost basis per lot or is it a blended cost basis?
If the cost basis is kept by lot, can the client sell some of the company stock with high basis and leave only the shares with low basis to complete an NUA on the low basis shares?
Example below:
Client has $1,000,000 in company stock held in 401(k). Current stock price is $100/share. 5,000 shares were purchased at $10/shares and remaining 5,000 shares were purchased at $90/share. Can the client contact the 401(k) provider and instruct that the 5,000 shares with a cost basis of $90/share be sold while leaving the 5,000 shares with a cost basis of $10/share in company stock for NUA? Essentially, they want to keep the low cost basis lots for NUA and sell the other lots. Is this allowed?
Permalink Submitted by Alan - IRA critic on Mon, 2023-09-18 22:34
All this is allowed by the IRS, but the plan accounting provisions determine if this is allowed in the specific plan. Most plans use the average cost method, but if not the IRS will not argue with the 1099 R cost basis/NUA amounts issued by the plan. I would advise this client to diversify these holdings ASAP.