NUA on 401k
Have client who has two stock positions in her 401k (out of a 50k account) the following is the information. The couple makes approx. 135- 145k per year.
a. value is $14,300 with a cost basis of $7,121.09
b. value is $4590 with a cost basis of $1729.99
I feel the under the A is might be worth it to use the NUA but not on the B.
Can you give me some insight on this, whether either on is worth it or not? (Of course not using your opinion or insight as a decision or recommendation to go either way).
Thank you very much,
Douglas
Permalink Submitted by Alan - IRA critic on Tue, 2015-11-17 20:35
Unless the cost basis is under 30%, NUA is not that appealing. Both stocks have cost basis well in excess and A is 50%. B is lower at 37.7%, but still over 30% and a very small position. An exception where NUA would still be beneficial would be if the client needs funds for immediate expenses and would have to tap 401k funds. In that case NUA would provide a tax break on the NUA portion due to lower LTCG rates. Another factor is the 10% penalty on the cost basis if the client did not separate at 55 or has not reached 59.5 when the distribution of shares takes place. If this penalty is due, it presents an additional cost for a distribution.
Permalink Submitted by Bruce Steiner on Sun, 2015-11-22 17:45
Another factor to consider is that the rollover allows for the possibility of a Roth conversion, which often adds substantial value.