NUA Treatment Disqualified by Dividend Distribution?
A 401K plan containing company stock has distributed dividends from the company stock since the last qualifying event. Does this disqualify the company stock for future NUA treatment, or are dividends not considered to be a distribution for NUA purposes?
Permalink Submitted by Alan Spross on Sun, 2009-11-22 04:39
I do not believe that these dividends are considered intervening distributions, effectively eliminating a qualified LSD. However, I cannot site a specific reference. These dividends are not normally discretionery distributions at the employee’s request and occur based on the type of ESOP arrangement that exists. In addition, these dividends paid to employees are not reported on a 1099R, but on a 1099 DIV. They cannot be rolled over, and carry a number of special tax provisions. For example, by definition, these dividends are not considered qualified for the LT cap gain tax rate.
While all of this is anecdotal to your question, my guess is that these dividends are not intervening distributions.
Permalink Submitted by l w on Thu, 2014-08-14 06:28
where would I find IRS clarification on whether dividend payments on company stock in employer savings plan would be considered intervening distributions? (Distributions sent in the form of a check.) There is a large amount of stock value eligible for NUA treatment, but it would pose a huge tax burden if IRS disqualified NUA treatment. If the employer could state whether or not the stock distribution would be noted in Box 6 on 1099-R, could the IRS dispute that later?
Permalink Submitted by Alan - IRA critic on Fri, 2014-08-15 01:34
What type of savings plan, perhaps an ESOP? Have dividends been reported on a 1099DIV?
Permalink Submitted by Gerald Wergland on Sun, 2009-11-22 11:31
Thank you, Alan. However, these are not ESOP distributions. They are discretionary distributions, requested earlier this year. Since they just started this year, there are no tax reports yet. My guess is that the 401K will issue a 1099-R since the distributions will be taxed at ordinary income rates.
I cannot find a specific reference, either. My guess is that unless dividends are not treated as distributions resulting from a sale of stock, they will violate the rule of taking a LSD in one calendar year.
Permalink Submitted by Alan Spross on Sun, 2009-11-22 18:48
In a basic 401k, the dividends are usually reinvested in the issuer. This would typically change the average cost per share somewhat. However, in this case, I agree that the 1099R will result in an intervening distribution unless the LSD can be completed this year. And time is getting short to get cost basis quotes, examine the potential benefits and complete the LSD, if that will be of benefit. This also raises the question of whether distributions prior to the LSD, but in the same calendar year are considered intervening or not. I do not think that these become intervening distributions if the LSD is completed by the end of the same year.
For example, I have never heard that the IRS indicates that the taxable distribution must be done prior to the IRA direct rollover, but there have been plenty of cases where the LSD has been negated if there is any amount whatsoever left in the plan when the year ends.
Permalink Submitted by Gerald Wergland on Sun, 2009-11-22 21:02
Thanks, Alan. The economy tanked a lot of potential for NUA treatment this year. I think my dividend distributions this year, the short time before the end of the year, and the current market value of the stock is going to kill the NUA option. I may be better off looking at Rothing it in 2010 & 2011.
I appreciate your help on this question, and all the wisdom you impart on the discussion forum.