Using NUA for RMD cont’d
My apologies for starting a new topic. My original seems to have gotten lost in the thread, as I haven’t seen a response in a couple of days. I’m repeating my last post here with a couple of modifications/additions. (For reference, please see topic Using NUA for RMD.)
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I met with my 401k consultant 11/19/24 and told him of my decision to defer the 2024 RMD to 2025 and to sell the NUA shares not needed to satisfy my 2 years of RMDs plus a little more. I am able to use the 7859 after-tax amount to reduce the cost basis, so that is good news. Good news also is that the market value has increased from 207k to 258k! I’m also due to get matching contributions and possible profit-sharing at the end of the year, so that will have some effect.
To try to make this an uncomplicated as possible, I plan to open a separate brokerage account for the distributed NUA shares and not have the dividends reinvested. I have no need to sell them in the first 12 months.
My challenge, now, is that the 401k consultant seems to think the RMD amount is applied to the cost basis and not the market value. Obviously, if the 1099R is not completed correctly, I will be paying much more in taxes than I should. I have scoured the web for information about using NUA for RMD. Other than the many very informative entries on the Ed Slott Discussion Forum, there are very few articles related to this specific situation. I also haven’t been able to find anything specific in the IRS guidelines. Can you point me to any additional information or examples specifically using NUA for first RMD? I did review the 1099R Instructions. Would these be the right entries considering a 2-year RMD of $150,000?
Box 1 – 150,000 (FMV of distributed shares – to be applied to RMD)
Box 2a – 93,329 (Cost basis of shares)
Box 2b – X (Total distribution, i.e., one or more distributions within 1 tax year in which the entire balance of the account is distributed)
Box 5 – 7859 (after-tax amount)
Box 6 – 56,671 (NUA)
Box 7 – Code 7 and IRA/SEP/SIMPLE checkbox NOT checked
Thank you for your invaluable help, as always.
Permalink Submitted by Sherry Wilson on Fri, 2024-11-22 18:29
Thanks for the IRS regulation! That should help greatly.
So, if the after-tax amount is included in Box 1, does that mean the number of shares to satisfy the 150,000 RMD can be reduced? So, would it look something like this?
Box 1 – 150,000 (FMV of distributed shares [142,141] plus after-tax amount [7859] – to be applied to RMD)
Box 2a – 88,439 (Cost basis of shares)
Box 5 – 7859 (after-tax amount)
Box 6 – 53,702 (NUA)
I did know the 2024 RMD is based on the 2023 year-end account value, but thanks for the reminder, as I had not been thinking of it. I’ve received the amount of the 2024 RMD (75,601) but, of course, not the 2025 RMD, so the calculations will change.
I didn’t get any specifics regarding the mechanics of selling NUA shares in the plan before any distributions or using only some of the shares for NUA distribution while rolling over the rest, other than the fact that it can be done. The consultant mentioned distributing the shares to the brokerage account and the IRA could be done at the same time, to which I told him it was important that the distribution to the brokerage account be done first because of the RMD. I will need to follow up to be sure that is done correctly.
Permalink Submitted by Sherry Wilson on Mon, 2024-11-25 14:58
What a fitting time of year to tell you how grateful I am for you and your advice. Nowhere on the web can you find this caliber of information. In fact, I found that many financial web sites actually reference your articles and discussion topics! I can’t thank you enough for guiding me through this situation. I think I have enough information (and education!) to get through it now. Happy Thanksgiving!