Cost base calculation when/after rollover 401k with NUA
Question on how to calculate NUA cost base if I want to rollover my 401k comapny stock to a taxable account. In my 401k, My pre-tax stock account value is about $400,000 with cost base $40,000, after-tax account is about $300,000 with cost base $25,000.
Question 1: If I go ahead with rollover, Do I have to pay ordinary income tax on the after-tax porion of the base ($25,000) ? or only pay tax now on the $40,000 ?
Question 2: later when I sell the stocks, I guess I will pay capital gain tax. Let’s say I sold $10000 worth of my stock. what is the base cost ? what is the amount of capital gain that I have to pay tax on ?
Thanks.
Permalink Submitted by Alan Spross on Tue, 2011-02-22 21:12
You are dealing with two basis figures with NUA stock. First, there is the portion of your stock that was purchased with after tax contributions. Then there is the cost basis for NUA purposes which is the average cost per share paid for the shares with the total of pre tax and after tax dollars. Which cost basis are you describing here?
Is all 700k company stock? If so, the other assets in the plan must be directly rolled to a TIRA or Roth IRA in the same year to qualify for a lump sum distribution. You do not have to use NUA for all the shares if you don’t want to. You can roll some to the IRA and use NUA for only some of the shares if you wish. The company will issue a 1099R for the shares you transfer to the brokerage account and the NUA plus the taxable cost basis plus the after tax amount will total to the gross distribution. Any other assets rolled to an IRA will get a different 1099R.
Amounts that are attributed to your after tax contributions will reduce the current taxable income on the NUA cost basis. For example, if the cost basis for NUA purposes is $10 per share and the current value is $40, but the plan assigns 30% of your purchases to after tax money, then your current tax bill will be $7 per share.
But your NUA cost basis when you sell the shares in the taxable account will be the $10 figure. If your NUA amount on distribution was $30 per share, then your LT cap gain for an immediate sale would be $30 per share. If the stock drops, it reduces your NUA. If the stock gains from the $40 distribution value, you will pay ST cap gains on the additional value if you sell within the first year. After the first year, the additional gains are also LT.
Permalink Submitted by Yungti Yin on Tue, 2011-02-22 21:59
Thanks a lot.