NUA
I have a client that has company stock and the NUA option – however, the company will not allow “cherry picking” of shares to utilize NUA and shares to rollover (basis is over 800k so definitely does not want ordinary income in 1 year for 800k). The company says its all or nothing for the NUA. Could the client utilize NUA, receive the funds (or put to a brokerage account) and then use 60 day rollover to get say 80% of the total back into an IRA? Thanks!
Permalink Submitted by Alan - IRA critic on Wed, 2022-02-23 23:01
No. Each share of stock consists of x% cost basis and y% NUA with x + y equalling 100% of the share value. If client then decides to roll any % of shares from the taxable brokerage account to an IRA, then that % of shares will not be eligible for NUA, while the remaining shares in the brokerage will still be x% cost basis. The same is true even if the plan accounted for different lots of stock with different cost basis. Whatever is the cost basis for a given lot would stick with those shares if other shares were rolled over. It is therefore not possible for the client to roll the aggregated cost basis to an IRA and leave only 0 cost basis and 100% NUA shares in the brokerage account.
Permalink Submitted by Haley Sanders on Thu, 2022-02-24 12:44
Thank you, but it is possible to roll x% of the brokerage into an IRA….it would just remove that % from NUA eligibility, correct? And how does the client report that x% of the NUA was rolled into and IRA?
Permalink Submitted by Alan - IRA critic on Thu, 2022-02-24 15:16
That’s right. The 60 day rollover of employer shares to an IRA will reduce the total taxable cost basis and future NUA amount ratably. Report the partial rollover directly on lines 5a and 5b of Form 1040, the same line on which you report the G coded 1099R for the rollover that went directly to the IRA to create the required LSD.