Net Unrealized Appreciation

Submitted by [email protected] on Tue, 2008-04-01 17:52

Hello,

We have a client that has company stock in their 401k plan and is retiring. We are trying to find out if it makes sense to elect to create net unrealized appreciation(NUA). This person is below 50 yrs old and the 10% penalty would apply. Does anyone have any thoughts or resources on how to figure out the best strategy. (i.e rollover IRA or NUA)

Also does Ed have any articles on this subject. It would be great to hear back from someone on this issue.

Thanks

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Permalink Submitted by Alan Spross on Tue, 2008-04-01 22:38

Here is some detailed analysis from Fidelity. In addition, note that the 10% penalty only applies to the cost basis taxable in the year of the LSD, NOT to the NUA itself. The client should request a written cost basis quote from the plan, and also inquire if there are any cost basis options other than average cost. If there are spin offs in the plan, each would have it’s own cost basis per share. Of course, changes in the FMV of the stock from here will either increase or reduce the NUA % prior to distribution.

http://www.fidelityresearchinstitute.com/pdf/nua_may2007.pdf

Permalink Submitted by [email protected] on Wed, 2008-04-02 13:36

Thanks for your insight Alab – I will read through the Fidelity Paper

Bennet