Net Unrealized Appreciation
Have a client with highly appreciated stock in his 401k plan. Is uneasy about the concentration of stock in the the 401k account. Approximately 65-70% of 401k consists of the company stock. Would like to reallocate the account so his stock position only represents approximately 40-50% of the total 401k balance. If he were to change the allocation, would he still be able to take advantage of the NUA election on the remaining shares of stock in the 401k account?
Also, are NQ Stock options considered part of company plans that need to be liquidated/distributed as well to qualify for NUA treatment or does that only refer to retirement plans – pension/401k?
Thanks!
Permalink Submitted by Alan - IRA critic on Fri, 2014-03-07 03:06
Yes, NUA is still available for whatever remaining shares are held in the 401k at the time of the distribution. It is wise to unload some of these shares because diversification is more important than potential tax advantages. Even 40% if too high and risky, so he should probably unload even more than indicated. NQ options are not included in the type of plans which must be distributed in order for the LSD of the retirement plans to be considered qualified for NUA.
Permalink Submitted by Brian Bishop on Fri, 2014-03-07 03:40
Alan, thank you for the quick reply. This is very helpful information. Yes, I do think it is wise to reduce allocation to company stock, but wanted to make sure that we weren’t putting NUA option at risk. Will be a more productive conversation with client tomorrow now that I have additional information. Many thanks!!