NUA and Roth IRA Contributions: Today’s Slott Report Mailbag

Thursday, November 16, 2023

By Andy Ives, CFP®, AIF®
IRA Analyst
Follow Us on X: @theslottreport

Question:

My client’s husband recently passed away. We have converted her late husband’s 401(k) to a beneficiary 401(k) in preparation for transferring it to a beneficiary (inherited) IRA. There is company stock inside the 401(k) currently. We want to leverage the NUA (net unrealized appreciation) tax strategy. Is stock inside a beneficiary 401(k) eligible for NUA, the same as the stock would have been when he was alive?

All the best,

Charles

Answer:

Charles,

Yes, you can use the NUA tax strategy for company stock in a beneficiary 401(k). “Death” is one of the triggers that opens the NUA opportunity. All or a portion of the company stock will be transferred in-kind to a non-qualified brokerage account. The remaining assets can be directly rolled over to the inherited IRA. Just be sure the entire beneficiary 401(k) is emptied in one calendar year. Otherwise, the NUA strategy of paying long term capital gains on the appreciation of the company stock will be lost.

Question:

I am married and make too much money to contribute to a Roth IRA. My wife works and is below the income limits for a Roth IRA contribution. We file our taxes separately. Can she contribute to a Roth IRA, and are there restrictions as to how much she can contribute? We live together all the time.

Tom

Answer:

The Roth IRA contribution phase-out limit for married, filing separate tax filers is only $10,000. If your wife has compensation of less than $10,000, she can contribute up to her total modified adjusted gross income level, but no more than $6,500 for 2023 (plus an additional $1,000 if she is age 50 or older).

 

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