NUA
I have a 62-year old client who retired last month. He has about $850,000 of company stock that remains in the plan – nothing else. He rolled out his other retirement savings to an IRA when he turned 59 and 1/2 as an in-service distribution in 2018. The stock has appreciated enough that NUA is worth considering. Will the prior in-service distribution prevent him from transferring his stock as an NUA transaction? Thank you!
Permalink Submitted by Alan - IRA critic on Thu, 2021-01-14 16:32
His retirement (separation from service) is a new triggering event that replaces the prior age 59.5 triggering event and makes him eligible for a qualified LSD. Contrast this situation with having done the other distribution after both 59.5 AND separation and that distribution would then have been an intervening distribution that would have disqualified NUA, except at his death (the final triggering event). Therefore, he is fortunate that this recent separation restores his ability to take a qualified LSD.
That said, he needs to get a cost basis quote from the plan to see what his cost basis is as a % of the share value and then determine what he plans to do about proper diversification. If he unloads much of the shares after the distribution, he will owe LTCG tax on the amount of NUA per share, so even if the cost basis is low, he would have to report the cost basis as ordinary income plus the LTCG from the share sales in 2021. If he sells enough shares his taxable income might rise enough to trigger the 20% LTCG rate, although the amount of NUA per share is NOT subject to the NIIT.