Thrift to IRA or NUA
A lady I know, who is 54 and retired, has been taking the dividends out of her thrift plan (from the KO stock which accounts for 98% of the plan), which you can apparently do since her plan is with KO and is considered an ESOP plan for tax purposes. Is this a disqualifier for NUA? Should I just do a roll over to an IRA?
Permalink Submitted by Alan Spross on Thu, 2007-12-13 02:21
ESOP dividends reported on a 1099 DIV are not considered intervening distributions that would disqualify an otherwise eligible lump sum distribution (LSD) for NUA.
What is interesting is that cash payment of these dividends prevents them from being reinvested in more shares and increasing the average cost basis of the shares left in the plan. That helps the taxable cost basis of the shares to generally be lower in the year of an LSD.