NUA options for beneficiaries | Ed Slott and Company, LLC

NUA options for beneficiaries

Can the beneficiary of a 401k still take advantage of Net Unrealized Appreciation of company stock upon inheritance?

Yes. The beneficiary inherits the NUA in the plan, and the participant's death becomes a new triggering event to qualify for NUA even if the participant had taken distributions. The beneficiary should determine the cost basis % of the total share value before making the decision to request a taxable distribution (cost basis now and cap gain when shares sold) by having the NUA shares transferred to a taxable brokerage account. The remainder of the inherited 401k would be transferred as a direct rollover to an inherited IRA, and the entire plan balance must be distributed as a lump sum distribution qualifying for NUA treatment. A non spouse beneficiary should be sure that NUA will be beneficial since they cannot change their mind and do a 60 day rollover of the NUA shares to an IRA like the participant could have done.

 

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