Lump Sum 401K - NUA | Ed Slott and Company, LLC

Lump Sum 401K - NUA

I am looking at using NUA to do a lump sum 401K distribution. My 401K only contains company stock purchased over 40 years. The trustee has tracked every stock purchase price.

The trustee is recommending that I take the lowest-cost shares and assign them to the after-tax contributions both Pre 1987 and Post 1986. The trustee would move these shares into a taxable brokerage account and there would be no immediate tax consequence. Of course, there will be capital gains when the shares are sold. If I passed away, there would be no step-up basis. The trustee would sell the remaining shares while in my 401K. The cash would be distributed into an IRA.

The overall result is that there is no immediate tax impact. Does this comply with the tax code?

  • Yes, that is OK. You will need the 1099R issued for the NUA shares distributions to show 0 in Box 2a and the Box 6 NUA amount should be equal to the Box 1 amount. But the cost basis of the shares in the taxable account will be based on what Box 2a would have shown had after tax contributions not been applied. In other words, the NUA per share is NOT increased as a result of Box 2a being 0.  To get to 0 in 2a, the plan administrator has to clearly understand what is being requested and correctly determine the number of lowest cost shares needed to absorb the after tax amount applicable to the shares.
 

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