NUA Tax Reporting

Submitted by Liz Miles on Wed, 2011-06-22 06:17

My husband rolled over his 401K last week taking advantage of the NUA. He rolled all of the company stock into a brokerage account and he rolled the other investments into an IRA. I have 2 different scenarios that I would like to ask a question about. To make it easier I am going to say he rolled over 200 shares of stock.

1.So now he has 200 shares of stock in a brokerage account. If he rolls over 50 of these shares (within 60 days, of course) from the brokerage account to the IRA, that should lower the cost basis of the stock that still qualifies for the NUA and that will be taxable on this year’s tax return. The company who held the 401K will send a 1099R with the total taxable amount on it (cost basis of all 200 shares of stock). What will I need to subtract the cost basis of the 50 shares of stock that were rolled over to the IRA (second rollover) and no longer qualifies for NUA? What form will show this to the IRS? They will see the taxable amount (for all 200 shares) on the 1099R from the company who held the 401K. How do I show that 50 of those shares were rolled over to the IRA and no longer qualify for NUA? The cost basis for them will no longer be taxable because they are not stock falling under NUA. Only the basis for the 150 shares should be taxable.

2. Second question is about these same 200 shares of stock sitting in the brokerage account. If he sells 50 shares of stock right away, I understand he will pay LT cap gains on the difference in the basis and the value of the stock on the day of the rollover. And he will also pay ST cap gain on the difference between the value of the stock on the day of the rollover and the value of the stock on day of sale. My question is does he still lower his cost basis of the 200 shares by the 50 shares he sold? Does the basis change the same way that it does for my previous question? Or does the basis stay the same because it is still considered NUA stock even though he is selling it right away?

I hope these questions made sense. I’m looking forward to someone with all the answers to enlighten me.

Thanks!



Submitted by mk foss on Wed, 2011-06-22 17:04

Rolling over some of the shares has no effect on the basis of the shares retained. The 1099R should show the FMV of the 200 shares in the Gross distribution box (box 1). The NUA goes in box 6. The Taxable amount (box 2a) will have a figure that may or may not be the cost of the NUA shares – this box is also reduced by any after tax basis in the plan. This gets complicated because often there is usually only one 1099R that reports the entire distribution – even though there are different tax treatments for different pieces.

Let’s assume that the only thing on the 1099R is the FMV of the shares and the taxable amount is the basis of the NUA shares. When this is reported on the tax return, the gross amount is listed – rollover is indicated on the return and the taxable amount is the plan cost of the shares not rolled over. The NUA is a per share item – if it was $200 shares at a cost of $15 per share ($3,000) – the basis is not adjusted if 50 shares are rolled over. The cost of the NUA shares is still $15 per share.

If some shares are sold immediately – he applies the basis ($15 per share) in the example to the proceeds to determine gain. If the FMV on the date distributed was $32 per share and the stock is sold for $31 per share – the long term capital gain is $16 per share. If the stock was sold for $35 per share – there is $17 per share of long term gain and $3 per share of short term gain. Once the NUA shares have been held for a year – everything is long term gain when sold.



Submitted by Liz Miles on Thu, 2011-06-23 05:28

Thank you for your reply. Just a couple of questions to see if I understand correctly.

I understand about the basis being a per share amount and that doesn’t change. But the overall basis will change because it should not include the 50 shares that were rolled over from the brokerage account to the IRA. My concern is that the 1099R (Box 2a)will show the taxable amount of the 200 shares originally rolled over from the 401K to the brokerage account. Using your $15 per share example, Box 2a would be $3000 (200 shares x $15 per share). But if he rolls over 50 of those shares to the IRA then the taxable amount should actually be $2250 (150 shares x $15 per share). Correct?

How do we show this on the tax return when it will seem according to the 1099R that we should be claiming $3000? How do we show the $750 no longer being a taxable amount due to rolling those shares over into the IRA? Shouldn’t the taxable amount on the 1099R *Box 2b) and what is posted on Line 16B be equal?

You said, “The Taxable amount (box 2a) will have a figure that may or may not be the cost of the NUA shares – [b]this box is also reduced by any after tax basis in the plan[/b].” I am a little confused about this. Who reduces the amount in this box. Is this something the company issuing the 1099R does or is this something we are supposed to do?

Thank you so much for your help! I’m trying to get all this figured out so we don’t have any surprises next year at tax time.



Submitted by Alan Spross on Thu, 2011-06-23 20:34

Just report a rollover on line 16b in the same manner as if NUA were never involved. If Box 2a is 3,000, then show 2250 on 16b and enter “rollover” next to 16b. This is just a routine 60 day indirect rollover, with the exception that you are also rolling over a pro rated amount of NUA in Box 6. But do not show any of the Box 6 amount on line 16b, just the remaining taxable cost basis.

With respect to any after tax contributions used to buy the company shares in the plan, the 1099R would show a reduced amount in Box 2a. In that case, you are rolling over some after tax contributions to the IRA and should show that amount on Form 8606 for the next year an 8606 would be needed for an IRA distribution or contribution. To expand on your example, if 20% of the company stock was purchased with after tax contributions, Box 2a would show 2,400 in stead of 3,000. After rolling 25% of the NUA shares to an IRA, you would be left with 1,800 on 16b as the taxable cost basis, and your 8606 would add $600 to your IRA basis (15 per share X 20% X 50 sh). None of the NUA rolled over would be after tax.

Combining NUA with after tax contributions and a partial rollover is rather complex. You might want to add an explanatory statement with your return.



Submitted by Liz Miles on Thu, 2011-06-23 20:56

So, won’t the IRS balk if the amount on Form 1040 Line 16b doesn’t equal the amount in Box 2a of the 1099R or does the word ROLLOVER make it ok?

Also, will he get another 1099R from the brokerage account showing the indirect rollover?

Thanks so much!!



Submitted by Alan Spross on Thu, 2011-06-23 23:12

There will not be another 1099R as long as the current 1099R correctly reflects what was distributed to him. The rollover or partial rollover is the employee’s option if completed within 60 days. Showing “rollover” on 16b should indicate to the IRS that the difference between the 16b figure and box 2a was rolled over. In addition, the IRA custodian will issue a 5498 showing receipt of a rollover contribution for the value of the shares received, although that value will reflect the total value of the rollover including the former NUA amount and any changes in the share price in the meantime.



Submitted by Liz Miles on Fri, 2011-06-24 03:52

Thank you so much! You have answered all my questions and now I have a much better understanding of the issue.

I really do appreciate your help!



Submitted by Herbert Eng on Fri, 2014-10-31 00:23

I took a partial distribution/withdrawal from my former company 401K plan and also a partial transfer of company stocks to a taxable brokerage account using the NUA tax treatment in 2014. NUA transfer was 75,000 and cost basis was 20,000. I intend to keep the NUA in the brokerage account without selling for at least more than a year. My question is how is the cost basis for NUA reflected/reported in 1040.



Submitted by Alan - IRA critic on Fri, 2014-10-31 03:00

Partial distributions will not cut it. You will not be able to use your full NUA benefit unless you complete the lump sum distribution in the same year the NUA stock was distributed. The 1099R must reflect a total distribution when issued. If you then qualify, in the year you sell NUA stock, you will report the cost basis per share as your basis on Form 8949, and the NUA will be taxed at the LT rate. Additional gains will also be taxed at the LT rate since you will hold over 1 year before selling any shares. From Form 8949, the LT gain will be netted with other gains or losses and the allowed net result will move to Sch D. 



Submitted by Herbert Eng on Fri, 2014-10-31 05:23

I mean to say I will complete a lump sum distribution before end of 2014. A portion of it will be taken as cash distribution, and the remaining portion will be rollovered to a taxable brokerage account as NUA tax treatment. I will be required to pay ordinary tax rate on taxable amount in the cash distribution and on the cost basis in 2014, and LT capital gain tax rate when the NUA stocks are sold.I expect to receive a 1099-R for the entire lump sum distribution. My question is how the cost basis is reflected in 1040 such that the tax is accounted for. Is the gross distribution (full lump sum distribution) reported in box 1 and cost basis along with other taxable amount from cash distribution in box 2a taxable amount in 1099-R and the NUA amount in box 6. Is the 1099-R box 1 to be entered in line 16a 1040 and box 2a taxable amount to be entered in line 16b?



Submitted by Alan - IRA critic on Fri, 2014-10-31 19:04

Yes, just as you indicated. You would also owe the early distribution penalty on the 20k cost basis unless you separated at 55 OR have reached 59.5 by the date you took the distribution. You must calculate your cost basis per share (20k/number of shares distributed) for your use in reporting the sale when you sell the shares.



Submitted by Henry Levine on Sun, 2016-11-06 17:41

So if the company has decreed company stock will be distributed over several years, – that is their rule – Can an exception be had for NUA treatment?



Submitted by Alan - IRA critic on Sun, 2016-11-06 19:31

  • There is a very limited NUA benefit when the distributions are not part of an LSD. This is limited to employer shares purchased with your after tax (aka “employee” contributions if you have these shares. The plan administrator can tell you if you have any such shares. The NUA amount would be shown in Box 6 of the 1099R. There would be no taxable cost basis for such shares.
  • Other than the above, there is no exception to the LSD requirement. If the shares are distributed over several years, then NUA would only apply to the final year’s distribution of shares, since the earlier years would not be part of a qualified LSD.


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