60 day Rollover
Recently, I had my late husband’s 401K transferred in a lump sum distribution to two accounts. Since the bulk of the account consisted of company stock, I transferred in kind half to an IRA and the other half to a brokerage account. The transfer took place this week. I am reconsidering my original plan to take advantage of the NUA since the stock price has already declined $8 from a high about 10 days ago of $26. My avg cost is about $4 and the close yesterday was around $18. All my calculations for NUA were done based on a price of $24.
Given the current financial situation and the value of all my accounts being off considerably, my gut is telling me not to pay a lot of taxes at this time. My RMDs would not start until 2016.
Am I correct in my understanding that I have 60 days to rollover the amount in the brokerage account to the IRA without any tax consequences? Also, since the distribution to the brokerage account consisted of ESOP shares as well as company shares in an Equity Unit Fund, could I just roll over the Equity Unit Fund shares or do all the shares in the Brokerage account need to be rolled over within 60 days? Is it 60 days from the actual date of the transfer? Or is it when the shares appeared in the IRA and brokerage account?
My husband’s previous employer did indicate that four 1099-R forms will be issued for this distribution. I believe I was told the four 1099-R forms will be for the separate transfers: ESOP shares, the Equity Unit Fund shares going to the brokerage account, the Equity Unit Fund shares going to the IRA, and the cash position going to the IRA.
Is there anything else I should be concerned about with this lump sum distribution and my rollover possibilities?
Is there any IRS publication that would be helpful?
Thanks very much for your help with this matter.
Judy
Permalink Submitted by Alan Spross on Fri, 2008-10-10 23:10
The 60 days is measured from the date you or your brokerage account received the distribution from the plan. You can indeed opt to roll over a portion of the shares and retain the others for NUA tax benefit. Since the cost basis is still less than 25% of the market value of the NUA shares, the NUA concept is still viable. However, as you know diversification concerns should always trump tax benefits, particularly in this market.
The gross amount of the cost basis should also be considered since it could impact your marginal tax rate this year. There also may be some tax withholding on the cost basis that you may need to consider in completing a rollover.
This data is addressed in IRS 575, pages 26 and 27.
The potential value of NUA is dependent on the LT cap gain rate remaining at the current 15%. The longer you intend to hold the shares, the more likely that the 15% top rate would increase due to the massive budget deficits we now face. Therefore, hedging your tax bet and meeting diversification needs both need to be merged in your decision on the amount of NUA you retain as well as the soundness of the shares and how long it may take to recover from this market crash. You may want to use up most of the 60 days in arriving at the decision.