Question About NUA Transaction and Roth IRA

Submitted by William Scarfia on Fri, 2017-08-11 22:25

Hello all,

I took advantage of the NUA feature from my companies 401k. I converted all in calendar year 2016, paid all taxes with my 2016 tax return and have not taken any distributions from that account (now a regular brokerage account). Dividends are being reinvested, but there had been no other activity.

I am now wondering if I can now convert that account to a Roth. Or, frankly, if I should have done so at the start in place of the NUA transaction. Can I convert now to a Roth as all taxes on the 401k cost basis have been paid?

Bill

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Permalink Submitted by Alan - IRA critic on Fri, 2017-08-11 23:31

You had 60 days after the lump sum distribution to change your mind about NUA and roll over the employer shares to either a TIRA or Roth IRA. Therefore, it is too late now, but when you sell the shares the NUA will only be taxed at the LT cap gain rate. Any additional gains after the distribution are taxable at ST rates until 1 year passes from the distribution date, and LT rates after that.