NUA Taxation
Could someone explain if a 57 year old male with over 10 years of employment may take an NUA in kind distribution? If so, I understand the cost basis is taxed as ordinary income and NUA is taxed as long term capital gain when sold but does the 10% early withdrawal penalty apply in any instance?
Permalink Submitted by Alan Spross on Wed, 2009-11-04 21:48
The 10% early withdrawal penalty applies to the cost basis in the year of the lump sum distribution UNLESS the employee separated from service in the year they turned 55 or later. The penaly does NOT apply to the NUA amount, only the cost basis. If the employee separated prior to 55 but waited until 57, they would still owe the penalty on the cost basis. But after 59.5 all early withdrawal penalties would disappear.
Permalink Submitted by Justin Whelan on Wed, 2009-11-11 20:04
Alan,
Thanks for the information.
[quote=”[email protected]“]The 10% early withdrawal penalty applies to the cost basis in the year of the lump sum distribution UNLESS the employee separated from service in the year they turned 55 or later. The penaly does NOT apply to the NUA amount, only the cost basis. If the employee separated prior to 55 but waited until 57, they would still owe the penalty on the cost basis. But after 59.5 all early withdrawal penalties would disappear.[/quote]