NUA

Submitted by Meghanne Svatos on Tue, 2013-02-19 19:17

If I utilize the NUA provision from my employer-sponsored plan, am I able to then use the cost basis portion of the stock in the brokerage account to pay my tax liability for the cost basis at the end of the year?

For instance, I have $1 million in employer stock, with a cost basis of $200k. I utilize the NUA provision and now have $1 million of stock in a taxable brokerage account. When I receive my tax bill next year, can I go into the brokerage account and specify that I want to liquidate only the cost basis portion of the stock so I am not triggering any LTCG on the NUA portion?

Thank you.



Submitted by mk foss on Tue, 2013-02-19 20:00

I’m not sure I understand what you want to do. Each share has cost basis equal to the plan’s cost. I don’t see how you can sell shares and borrow the cost of unsold shares.



Submitted by Meghanne Svatos on Tue, 2013-02-19 20:33

I will owe regular income taxes on the $200k cost basis. So, in my brokerage account I will have $200k of cost basis and $800k of NUA. If I get a tax bill for $70k, can I take a distribution from my brokerage account of $70k which distributes only from the $200k of cost basis and not any NUA? Or, do I have to take my $70k distribution pro rata of cost basis and NUA? Which would be $14k cost basis and $56k NUA, meaning now I have to pay LTCG on $56k.



Submitted by Alan - IRA critic on Tue, 2013-02-19 23:27

  • Since each share will have a cost basis of 200k divided by the number of shares distributed from the plan, when you sell any shares you will owe LT cap gain tax in addition to the tax bill of 70k. So selling shares will only increase your tax bill unless you are in the 15% bracket where the LT cap gain rate is -0-. There is no way to reduce the 70k tax after you have had the shares 60 days. Within the first 60 days you could have changed your mind about NUA and rolled the shares over to an IRA and erased the 70k in tax.
  • For your question, if the share price has not changed since distribution and you sold 70k worth of shares, you would owe LT cap gain tax on 56k as you indicated in your last sentence. If the share price has gone up since distribution and you sell shares in the first year, you would have 56k in LT gain and the additional gains at the  higher short term rate. After one year additional gains are also LT which replaces the ST after one year.
  • To keep track of your cost basis of each share, divide 200k by the number of shares distributed. This is the basis that you will already have paid taxes on (the 70k), and this will remain the cost basis for each of your shares.
  • Remember that diversification trumps NUA tax benefits, so even if you will owe more tax by selling the shares faster, it is better than having too many eggs in one basket  (eg Enron, Lehman Bros).


Submitted by Meghanne Svatos on Wed, 2013-02-20 15:25

Thank you. Your response was very helpful!



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