NUA?
I have a client with Johnson control stock and some mutual funds in her 401k and she is now retired still holding the stock in the company plan. I don’t know the basis of the stock but assuming it’s lower tham current market price should I move the stock into a brokerage account and sell it, then roll the funds into an IRA? I plan to use a VA for the IRA and eventually if sold in a brokerage account the Johnson Control proceeds would also go into a VA. If the client does not know the basis how can I determine that? will the current costodian have the info? Please advise. Any input would be greatly appreciated.
Sincerely
David P
Permalink Submitted by Alan Spross on Tue, 2007-10-16 03:11
Per Sec 402(c)6:
(6) Sales of distributed property
For purposes of this subsection –
(A) Transfer of proceeds from sale of distributed property
treated as transfer of distributed property
The transfer of an amount equal to any portion of the proceeds from the sale of property received in the distribution shall be treated as the transfer of property received in the distribution.
Essentially, this means that if you sell the NUA shares in the taxable account and rollover the proceeds, you have lost the use of NUA for the sale. Therefore, the IRA rollover must be composed of cash or assets other than employer shares used for NUA. First, you should get a cost basis quote from the plan admintrator to determine what % of the FMV (fair market value) represents the basis which will be taxable in the year of the LSD. Realistically, the cost basis should be less than 1/3 the FMV to make the use of NUA a wise choice.
She also needs to determine if she is eligible for a qualified lump sum distribution based on the latest triggering event, either separation from service, a disability determination or reaching 59.5. If she has taken any distributions in prior years she has eliminated prior triggering events and must wait for the next one. Therefore, after 59.5 any intervening distributions means that she could not use NUA at all because her lump sum distribution would not qualify. When all these things are determined and analyzed, the choice should be made. Above all else, the need for proper diversification should trump potential tax benefits including those of NUA.