NUA Problem
A person came to me because he took out shares of stock from his 401 K at GE. He wanted to use NUA. However, he did not understand that the cost basis would be taxable at ordinary income rates. This will absolutely kill him because he is in a very high tax bracket this year plus his cost basis is high. Can he roll over the stock shares into his IRA with in 60 days using the 60 day roll over rule. He is with in the 60 days. Also, can company stock be rolled into an IRA? I know he would lose NUA but he is not worried about that any longer.
I am trying to help him fix the situation.
Any suggestions?
Thanks,
Kurt
Permalink Submitted by Alan Spross on Thu, 2008-08-28 22:23
Kurt,
Yes, he is in luck if still within the 60 days. He can roll over the employer shares to his traditional IRA in kind. If he has sold any of the shares, he can also roll over the cash proceeds from the sale.
But he cannot keep the shares and roll over replacement cash.
That said, paying the taxes on the cost basis is always somewhat painful, but the benefit comes later with a much lower cap gain rate to be applied to the NUA. Still, the cost basis should be below 30% of the stock value per share or NUA is not particularly compelling.
In addition, there is now a question of how long the top rate on LT gains will remain at 15%…………..