Net Unrealized Appreciation (NUA) and See-Through Trusts: Today’s Slott Report Mailbag

Thursday, September 28, 2023

By Sarah Brenner, JD
Director of Retirement Education
Follow Us on X: @theslottreport

Question:

Good afternoon.  I am looking for some Net Unrealized Appreciation (NUA) help, please.

If someone does a rollover of company stock to an IRA, can she undo that rollover and then do an NUA transaction? 

Thanks,

Alan

Answer:

Hi Alan,

The NUA strategy can be a good option when there is highly appreciated employer stock held in an employer plan. The stock can be distributed in-kind, and any appreciation can be taxed at long term capital gains rates.

Among other requirements, you must have a distribution of the stock in-kind from the plan to you. It cannot be rolled over to an IRA. Unfortunately, an IRA rollover is irrevocable, so if this has already happened there is no way to reverse the transaction and use the NUA strategy.

Question:

Are you able to have a Testamentary Trust/Trust Under Will still have it qualify as a “see-through trust” which would allow the 10-year rule to be used?  The testamentary trust outlined in the will does appear to meet the “see-through trust” requirements.

Thank you!

Melanie

Answer:

Hi Melanie,

Yes, a testamentary trust can qualify as a “see-through trust,” which would allow the use of the 10-year rule for distributions from an inherited IRA.

To be a see-through trust, the following requirements must be met:

 

  • The trust must be  valid under state law or would be but for the fact that there is no corpus.
  • The trust must be irrevocable or becomes irrevocable upon the death of the account owner.
  • Beneficiaries of the trust who are beneficiaries with respect to the trust’s interest in the retirement plan must be identifiable.
  • The trustee of the trust must provide a copy of the trust or a list of the trust beneficiaries and their entitlements to the plan trustee, custodian or administrator no later than October 31 of the year following the year of the account owner’s death.

 

 

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