NUA
I have a client that is retireing and has Chevron Stock in their 401K account. (about 50%) I mentioned NUA and the basics but have never done one. Can any body help me with this and what I should do?
I have a client that is retireing and has Chevron Stock in their 401K account. (about 50%) I mentioned NUA and the basics but have never done one. Can any body help me with this and what I should do?
Permalink Submitted by karen Birr on Wed, 2009-09-16 14:47
NUA treatement requires that a lump sum distribution be taken and the plan document allows for a distribution of the stock versus a cash out. The stock certificates are transfered to a brokerage account. Ordinary income tax will be due on the cost basis of the stock in the year the distribution is taken and the 10% early withdrawal penalty will apply on the cost basis unless the individual is over 59 1/2 or has terminated service and is at least age 55 +. The difference between the cost basis and the market value at distribution is the NUA. This will be taxed at long term cap gains rate when the stock is sold. Any additional market appreciation after distribution has it’s own holding period for determining short or long term cap gain treatment. The other assets in the plan can be rolled to an IRA to maintain tax deferral.
Permalink Submitted by Eric Scott on Wed, 2009-09-16 15:16
thanks for your help.
Permalink Submitted by mk foss on Wed, 2009-09-16 17:00
With 50% of the retirement account in Chevron stock, the trick will be to determine how many shares to roll over and how many to pay tax on. You do not need to use the NUA benefit on all of the shares.