Net Unrealized Appreciation (NUA) question/suggestions for tax benefits

quote:

---

You must have a triggering event. These are separating from service with your employer, being age 59 1/2, total disability, and death. You had to buy the stock with pretax contributions and employer matches and your entire vested balance in the plan must be distributed in a lump sum within one tax year, so if you withdraw some money for personal needs, you may disqualify yourself from NUA treatment. Also, you must distribute all assets from all qualified plans at your former employer, not just the one that held the shares of stock. When your plan is distributed, you will deposit the shares in kind in a taxable brokerage account and recognize the basis as a taxable distribution. The basis is basically what you paid for the stock but the plan will determine the basis and the resulting NUA. The NUA of the stock is only taxed when sold and at the long-term capital gains rate that applies at that time. For example, say your 401(k) contains $100,000 dollars of XYZ stock which you bought with pretax contributions for $10,000. You have $90,000 of NUA. If you roll the stock into an IRA, you will pay no tax at the time of sale but when you take a distribution from the IRA, those funds will be taxed as ordinary income. If you instead chose to take out the stock under the NUA tax rules, the $10,000 basis is deemed a taxable distribution from the 401(k). If you are under age 55, you will pay a 10% early withdrawal penalty tax on top of the tax on ordinary income. The $90,000 NUA is not taxed upon distribution until it is sold. If you sell the stock upon distribution, it will be taxed as a long-term capital gain. If you hang on to it, any further appreciation above and beyond the $90,000 is taxed as short-term gain if sold within the year or long-term gain if held longer than a year.

---