Tax break for company stock in 401k

Submitted by Don Cameron on Fri, 2016-10-07 12:03

Can a person with company issued stock inside a 401k, that has a substantial loss, distribute these like an NUA
sell the stock and take the loss deduction against income?



Submitted by Alan - IRA critic on Fri, 2016-10-07 19:14

  • If there is no NUA, and a person wants an in kind distribution, they would pay taxes on the current value of the stock and their cost basis would be the value on the date of distribution. The holding period would begin on the date distributed after which the person might have a gain or loss, either ST or LT.
  • There is no negative NUA, but even if there were it would make no sense for a person to pay ordinary income taxes on the cost basis (what the plan paid for  the shares) and later when the shares are sold for a loss the loss would first be used against any LT cap gains which are taxed at a lower rate. The person would be paying a higher rate than the benefit  received which would only be a reduction of cap gain taxes.
  • If NUA shares were distributed and the 1099R showed NUA in Box 6, the cost basis would be shown in Box 2a. Taxes are due on that cost basis. Later if the shares drop in value, the NUA is erased first and additional drops in value below the cost basis upon distribution from the plan would result in a cap loss (LT if held over a year after distribution). In other words, the only way there would be a capital loss would be on drops in value AFTER  the distribution from the plan as NUA shares. You could not have a cap loss on reductions of value that occurred while the plan held the shares before the distribution.

 



Add new comment

Log in or register to post comments