NUA
Client has company stock in his 401k/PS account. The amount is >$500K of a $1M account. He’s 52 and wanting to diversify into more conservative options. Please help me with NUA and considerations that should be made. Thanks.
Client has company stock in his 401k/PS account. The amount is >$500K of a $1M account. He’s 52 and wanting to diversify into more conservative options. Please help me with NUA and considerations that should be made. Thanks.
Permalink Submitted by Julie Brangenberg on Thu, 2019-12-12 19:55
In addition, the client wants to retire @ 55, and would like to start drawing money from 401k. If he leaves it in the plan, is the 10% penalty waived? Thanks.
Permalink Submitted by Alan - IRA critic on Thu, 2019-12-12 22:40
Once he separates from service, he could consider NUA and a lump sum distribution, but if he does not drain the plan balance he cannot use NUA until he does. However, if he wants to leave a balance in the plan to waive the 10% penalty between 55 and 59.5, that would no longer be necessary if he distributes the employer shares, since they can be sold with only a LT cap gain tax (Lower than ordinary income withdrawals) anytime. Actually, he has a major diversification exposure right now, if this plan is the bulk of his savings since he has over 50% in just one stock. Any major issues with the company and his equity and perhaps his job as well are at risk. For the shares he still has upon retirement, NUA is most beneficial if the cost basis is 25% of the value or less. Much higher than that and an IRA rollover would probably be better. Would not hurt for him to get a cost basis quote now just to see what the cost basis % is. That could be a factor in determining how many of these shares might be sold very soon. DIversification always trumps tax benefits since the full principal could be at risk.
Permalink Submitted by Julie Brangenberg on Tue, 2019-12-17 17:40
Would cost basis only include employee contributions or does it also include company contributions in stock? Thanks.
Permalink Submitted by Julie Brangenberg on Tue, 2019-12-17 17:43
Please explain how NUA works. Thanks..
Permalink Submitted by Alan - IRA critic on Tue, 2019-12-17 20:18