NUA
I have a number of clients retiring from Anheuser Busch this year before the buy out takes place. For example, in a clients 401K – $738,766.56 of ordinary income, $26,618.09 of non taxable employee contribution and $847,607.67 of NUA. How do I go about taking advantage of the NUA?
Permalink Submitted by Alan Spross on Thu, 2008-08-28 01:13
With a taxable cost basis of 46%, the benefits of NUA are highly problematical. The plan administrator should be asked if all the shares are accounted for on an average cost basis, or if their are various lots that have a lower cost. In that case, if some of the lower cost shares can be combined with the after tax amount to bring that taxable cost ratio way down, a partial use of NUA would be viable. But this depends on what will happen with the shares, ie. when and if they are going to be cashed out. Therefore, some detailed number crunching needs to be completed before the best decision can be determined. If some clients are not yet 59.5, they also need to determine the best method of securing distributions without incurring the early withdrawal penalty. Direct flexible distributions from the plan for those separating at 55 or later may be possible, and/or a 72t plan can be set up from an IRA rollover. Perhaps some combination of NUA and both these other options can also be pieced together.
Permalink Submitted by BruceM on Thu, 2008-08-28 17:53
I agree with Alan. In addition let me offer this…
This will be a [b]BIG[/b] exercise in Excel. I did one of these last Spring for a retiree from Intel, and it involves lots of calculations. The important variables are:
– basis of stock contributions and, as Alan says, if the QRP TPA does stock lot or average basis. This is crutial.
– Retiree’s marginal tax rate, Fed and State. Watch this, because a large NUA may push the client through a tax bracket and may result in loss of deductions/credits due to AGI phaseouts.
– The 10% early withdrawal penalty if