NUA FOR RETIRED EMPLOYEE
I AM AN RETIRED EMPLOYYEE AND HAVE MY 401(k) WITH MY EMPLOYER. I AM 701/2 THIS FEB.2009. I HAVE NOT TAKEN MY RMD FROM MY 401(k) SO FAR. I AM NOT GOING TO TAKE ANY RMD FOR 2009 SINCE CONGRESS WAIVED RMD FOR 2009. I AM GOING TO TAKE MY FIRST RMD FOR 2010 LATER. I HAVE MY COMPANY SHARES IN MY 401(k). I AM PLANNING TO TAKE LUMP SUM DISTRIBUTION OF MY 401(k) TAKING ADVANTAGE OF NUA (NET UNREALISED APPRECIATION) OF MY COMPANY SHARES THIS YEAR. MY COMPANY RETIREMENT PLAN IS MANAGED BY HEWITT ASSOCIATE, LINCOLNWOOD,IL. WHEN I TALKED TO THEM LAST YEAR(2008), THEY TOLD ME THAT I CAN TAKE LUMP SUM DISTRIBUTION TAKING ADVANTAGE OF NUA OF MY COMPANY SHARES. PLEASE ADVISE ME WHETHER I CAN DO THE LUMP SUM DISTRIBUTION TAKING ADVANTAGE OF NUA OF MY COMPANY SHARES.
ALSO, SINCE I HAVE TO REPORT THE COST BASIS OF MY COMPANY SHARES(ORIGINAL COST OF THE SHARES, NOT ITS APPRECIATED VALUE OVER YEARS OF SERVICE) AS REGULAR INCOME FOR 2009. CAN I DEDUCT MY WIFE IRA CONTRIBUTION, CHARITY CONTRIBUTION FOR 2009 TO ARRIVE MY TAXABLE INCOME FOR 2009? PLEASE ADVISE ME ON THIS.
THANK YOU.
MADAVAN MAKAYEE
Permalink Submitted by mk foss on Mon, 2009-08-03 18:51
It sounds like you will qualify to report NUA on employer shares received this year. You will need to withdraw everything from the employer plan by 12/31 so funds that are not employer shares must be rolled over to an IRA or be taxed to you as well.
The income from NUA shares is not compensation income and will not justify an IRA contribution for your wife. Compensation income from either of you is necessary to allow an IRA contribution.
Charitable contributions are deductible if you itemize. Receipt of the NUA will not change anything in that regard. If you have an IRA that you would normally be taking an RMD from, it’s possible to have an amount paid directly to charity. That procedure doesn’t give you a charitable deduction but there is no tax on the IRA funds transferred to charity in that way.
Permalink Submitted by Alan Spross on Mon, 2009-08-03 19:28
You are correct about being able to do an LSD in 2009 without having to first take out an RMD, due to the 2009 waiver. In determining if you are actually eligible to utilize NUA, you must make sure that you have not taken an intervening distribution from the plan in a prior year. An intervening distribution is one that is taken prior to the LSD, but after your latest triggering event.
For example, barring disability, your latest triggering event was reaching 59.5, or your date of separation, if later. After that date, if you took any distribution before your LSD year, it is a disqualifying intervening distribution. An RMD itself is an intervening distribution once they begin, so you are probably in your second final year to act. If still eligible for NUA, get a cost basis quote from the plan, and then determine if you want to utilize NUA and if so with how many of those shares. You do not have to use all of them for NUA if you do not want to. This decision is complex and typically requires some professional planning assistance.