NUA
Hello; Do I have any NUA (net unrealized appreciation) in company stocks that where given to me and now they are in a cash fund?
According to the company CFO “The ESOP documents provide that upon a participant’s termination of employment, the stock in a participant’s account will be converted to cash and invested along with the funds in the participant’s Other Investments account. As a result there is no company stock allocated to the terminated participant and distributions to him/her will consist of only cash, no company stock. Therefore the participant can’t utilize the NUA”;
According to my (very limited) understanding- since the cash now is based on stocks I once received (20to25 years ago) , there is some portion of NUA there.
What is correct?
Also- per the CFO- this is an S-corp not traded on stock market, and that rule does not apply to ESOPs that own stock in S corporations.
Is this correct?
If he is correct – is my best bet to just roll it over to an IRA (I am 55, and do not need the money immediately)
Thanks
Erik
Permalink Submitted by Alan - IRA critic on Thu, 2013-11-07 22:45
If shares of stock are not distributed to you and you only receive cash, NUA cannot be applied to any lump sum distribution. NUA might not have been beneficial anyway. For a cost basis of over 30% NUA is usually of questionable value unless you cashed out all the shares right away because you needed the cash for immediate expenses. An IRA rollover is frequently a better long term choice unless the cost basis is very small. And holding much value in shares of a small company is risky due to lack of diversification. Note that if you will need IRA money prior to 59.5, you might want to take a distribution of some of the plan assets instead of rolling all of it to an IRA. Distributions directly from the plan due to separation at age 55 or later are exempt from the 10% early withdrawal penalty. Conversely, if you needed IRA money prior to 59.5, you would have to adopt a rigid 72t (SEPP) plan to avoid the penalty.
Permalink Submitted by Erik Lite on Tue, 2013-11-12 07:27
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Thanks for the response;Just as side notes (to the above):1. my cost basis is not over 30% … but less than 1%… (Meteor stock…) 2. I maybe 55 now, but I separated from the company 25 years ago… 3. Single stock can be risky; this stock however sky-rocketed more then 30 times its value… 4. As I am not far away from 59.5, I could have waited, had I had some NUA there….One last question– Do you think company did something illegal or not kosher by selling the stock (converting it to cash) without my consent (that is- I could have not benefit from the NUA). This happened 2009 (and I had it as stocks 100% since 1993, till that year)
Permalink Submitted by Alan - IRA critic on Tue, 2013-11-12 16:38
If your cost basis is low enough avoiding the 10% penalty is less of a factor. As for the plan, they have not done anything improper unless they violated their own plan provisions. You could request a complete copy of the plan documents if you wanted to check into this further.