Step up for company stock in a 401K
If company stock is held within a 401K is the basis stepped up at the original owners death, even though it is held inside a retirement account? I know there is no step up in basis for stock rolled out of a 401K via an NUA, so was not sure what the rules are in this circumstance. Thanks!
Permalink Submitted by Alan - IRA critic on Tue, 2019-10-22 18:21
No, company stock still in a qualified plan at the participant’s death does not get a basis adjustment. If company shares are distributed as part of a lump sum distribution (LSD), and the former participant then passes holding these shares, the cost basis and gains after the LSD receive a basis adjustment. The amount of NUA per share does NOT receive a basis adjustment. The beneficiary will have to reflect this on Form 8949 when they sell the NUA shares. Strangely, the IRS has not issued clear guidance on how to show this without triggering an inquiry. An explanatory statement would be needed with the return.