NUA (Net Unrealized Appreciation) Questions

[Tbone]

My wife's work 401K is very heavy with highly appreciated company stock. Profit sharing (shares) from years past have been left sitting. I have a few questions:

1. If a portion of the stock is diversified into other 401k plan choices (index funds), can the remaining stock still recieve NUA treatment when she retires ? (probably later this year)

2. If stock is left intact, and moved to a brokerage account at retirement........is the maximum taxable income to stay in the 15% Capital Gains bracket   479,000?

3. Cost basis of the stock is at .05 %.....anticipate a 22% tax bracket (my SS, wifes SS, my home part time work, 4% 401k distributions). Opinions on doing NUA vs. completely diversifying.....Worth It ??

[jfoxcpacfp]

1. Yes, but 100% of the account must be distributed at separation from service. This close to retirement, I would carefully consider whether you want to give up the NUA advantage, but I understand it would make sense if you have some high-basis shares (which it doesn't appear you do, based on qux 3).


2. Yes, but the LTCG rate depends upon your overall taxable income. Don't forget that you'll be paying tax on the basis of the stock that is coming out and this will raise your taxable income. Based on your next statement, that d/n appear to be an issue, but I don't know how much stock you have, either.


3. I'm all for diversification, but you've got to run the numbers to make your decision. You can get NUA treatment, then sell and diversify. You've got to look at the basis of all the stock. Are you saying the basis for every share of company stock is .05% of current value (or the average)? That seems unlikely if there are current shares but, if so, it seems crazy to ignore NUA on at least some of the stock. But I don't know the whole story, either.

[Tbone]

Company stock = 866,000.00

Cost basis = 43,482.00

[Tbone]

the 43,482.00 is the average of all shares.

[jfoxcpacfp]

Yes, I see. Wow, you've got some gains going on. So you may have some recent stock contributions with much higher basis? You're really going to have to sharpen your pencil on this one.

[Tbone]

Company profit sharing was at its peak in the mid 80's through 90's. When the company stopped awarding stock shares we no longer added shares. There have been a couple splits along the way. How would one find out the share cost at different points in time?  Is it important to know ?

[jfoxcpacfp]

Tbone wrote:

Company profit sharing was at its peak in the mid 80’s through 90’s. When the company stopped awarding stock shares we no longer added shares. There have been a couple splits along the way. How would one find out the share cost at different points in time?  Is it important to know ?

Click to expand...

Yes, it's important to know if you are going to take advantage of any of the NUA tax benefits. If you're not then, no, it doesn't matter. I am sure your wife's employer will have this history on file. She should have been getting quarterly reports and it should all be online by now.

[AlexxT]

This might help, if you haven't seen it already:

https://www.kitces.com/blog/net-unrealized-appreciation-irs-rules-nua-from-401k-and-esop-plans/