NUA on 401k company stock

Submitted by Douglas Bauerband on Fri, 2015-03-06 20:39

I have a client who has $21,537 in a 401k. 100% is with company stock which has a cost basis of $8,686. That means she will only pay taxes on gains of $12,880.

I know its a lot below but I want to be right with the procedure.

Am I correct on the following:

a. I have to rollover the stock to a Non-IRA brokerage account?

b. once in the non-ira brokerage account. Then sell it and my client will pay capital gains tax on the $12,880?

c. Then there is no more tax on the balance of the account?

Questions:
1. are all the rules on the NUA still in effect or have they changed?

2. If my client is 65 and she sells this stock in the non-ira account this year, does she pay 15% or 20% on the capital gains for long term or short term gains?

3. she also has 31k of cash in the 401k, but I can’t do two rollovers, correct…so how do we get the other cash out if we can only do one rollover per year?

thank you,
Douglas



Submitted by Alan - IRA critic on Fri, 2015-03-06 22:43

  • a is correct and the all plans of a similar type must be distributed in order to be a qualified lump sum distribution; b is correct; c incorrect – taxes are due in the year of distribution on the cost basis of 8686.
  • 1) No change in rules in several years for NUA
  • 2) LTCG rate is 15% unless client is in the top bracket of 39.6
  • She can do the rollovers and must do the rollovers to have a qualified LSD and empty the 401k in the same year. The rollover limits do not apply to rollovers from a qualified plan to any other account, just to IRA to IRA rollovers.
  • With a cost basis of 40% NUA may not be worth the hassle unless she needs to raise cash from her retirement account in the fairly near future. For this small amount if she has no need for cash in the next couple years, she should forget NUA and just do a direct rollover to an IRA of the shares.

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