NUA
Alright I now have a client I think can benefit from this concept but I’m not clicking on how it happens. She has $600k in her 401k and $400k is company stock in a publically traded company. What is the process, taxes and disrtibution procedures I need to follow and understand?
1. Tansfer stock to brokerage account as what kind of money?
2. Is there still RMD’s – she is already 75 years old
3. Calculate cost basis, right?
4. Tell me what I need to know so I don’t screw it up and cause a problem
Thank you for your help
Danny
Permalink Submitted by Alan Spross on Thu, 2010-05-27 00:05
First, she may not be eligible for NUA if she has been taking intervening distributions from the plan. If she retired earlier, she would have been taking RMDs from the plan for the last few years. But if she is just retiring now and therefore has not taken any distributions from the plan, she would still be eligible. An intervening distriburtion is a withdrawal from the plan AFTER a triggering event but prior to the year the lump sum distribution is taken. Her last triggering event would probably have been her separation from service. Would need to know when she retired from this company and what her status is with RMDs.
Once she gets by the above hurdle, she would need to get a cost basis quote from the plan administrator. That quote would be the cost value per share for the shares purchased by the plan vrs the current value. NUA works best if the cost is 30% or less of the current value. If that cost is low enough, she then needs to fully distribute the plan in the same calendar year. Company shares would be transferred to a taxable account and the other assets directly rolled to a traditional IRA. The cost value of the company shares would have to be reported in income for the year of distribution, but the value of the shares are also deemed to satisfy the RMD for the current year or even RMDs due for prior years that are being taken late.