NUA reporting on 1099R
I have 401(k). In this account I have a company stock that has been purchased by the company for me as part of their matching contribution to 401k plan. The basis of this stock is very low and I plan to convert it fully into NUA on retirement. I also purchased the company stock in this 401k using my own funds (and this portion has different stock basis than the one that came from the matching contribution). I also plan to partially convert this part into NUA on retirement as well. How would the company report this NUA on 1099R form since each portion has different cost basis?
Permalink Submitted by Alan - IRA critic on Sat, 2019-02-02 00:22
Most companies use an average cost basis for all NUA shares, regardless of who made the contribution or when it was made. It is possible that your company separates these shares and uses a different average cost basis for each source, so you need to find out which accounting practices the plan uses. Note that you have a choice to have only some of the shares distributed for NUA regardless of differing cost basis, and could roll over the rest and perhaps sell them sooner. Normally, a cost basis of 25% or below makes NUA viable unless you actually need the funds for current expenses. As for the 1099R form, the NUA amount will be reported in Box 6 and the cost basis in 2a regardless of whether the plan supports accounting in different lots or not.
Permalink Submitted by abraham boznick on Sat, 2019-02-02 18:28
Thank you gor your answer. My company only reports overall cost basis of complete comoany stock for the matching contribution. Then it uses another overal basis for the company stock that I bought myself. I plan to use NUA for for all stock for the matching portion. But I only plan to use part of the company stock I bought myself for NUA purposes. So in my case the box 2a will consists of the sum of basis for the matching contribution, and basis of the portion of the stock which I bought myself and plan to use for NUA — right? Will I be able to adjust/correct the “official” 1099r reporting by cherry picking low cost basis shares which I am to use for NUA purpose for the company stock I bought myself? I have documentation on when I bought the company shares and thus can establish the cost basis of each bought lot?
Permalink Submitted by Alan - IRA critic on Sat, 2019-02-02 19:40
Are you going to sell the shares you do not want to use for NUA in the plan, roll them over to an IRA as part of the LSD, or distribute them with other NUA shares and then roll them over yourself to an IRA within 60 days? Will you be able to get a breakdown of the share cost basis in addition to just the 1099R?
Permalink Submitted by abraham boznick on Sat, 2019-02-02 20:16
Would it be a fair assumption that if my company only reports overall basis of all company shares then it uses average cost basis. Meaning if I sell within the plan only the shares I do not want then the remaining shares that I want to use for NUA would still continue to retain the average basis?Meaning that this average basis will be used in 1099r for shares that I plan to use for NUA?
Permalink Submitted by abraham boznick on Sat, 2019-02-02 20:17
Would it be a fair assumption that if my company only reports overall basis of all company shares then it uses average cost basis. Meaning if I sell within the plan only the shares I do not want then the remaining shares that I want to use for NUA would still continue to retain the average basis?Meaning that this average basis will be used in 1099r for shares that I plan to use for NUA?
Permalink Submitted by Alan - IRA critic on Sun, 2019-02-03 00:31
It’s not possible to make an assumption regarding the plan accounting provisions. If the plan tracks actual basis for various lots of shares purchased at a specific time, then it should be possible to sell those shares in the plan and only the cost basis for the remaining shares included in Box 2a. That way you will receive a Box 2a amount showing the cost basis of only the shares you distributed to a taxable brokerage account. All the shares you do receive will have a basis of the Box 2a amount (assuming no after tax contributions were allocated to these shares) divided by the number of shares, so all shares you sell later will have the same cost basis. Trying to accomplish this with shares after they are distributed would be risky and would require good written documentation from the plan. It is therefore safer if you sell all the shares you want to in the plan before the distribution since then you will not have to depend on a breakdown. All the shares you receive will have the same basis. It is also possible that the scenario you described could be the case, and that the plan will not change your average cost per share after selling some shares in the plan.