NUA Clarification
Client, 65, retired this month. He has mutual funds and company stock in his retirement plan. We’ve made several unsuccessful attempts to have the plan administrator understand and answer our question.
Current value of company stock is $27,000. Cost in the stock is $57,000. The employee did not contribute to buy the shares, it was ALL employer contribution.
If we transfer shares out in-kind, will the client have to pay ordinary income tax on $57,000 or will he pay ordinary income on HIS basis, which is $0 (and be able to sell the shares and pay LTC on $27,000)?? Thanks!
Permalink Submitted by Alan - IRA critic on Fri, 2022-05-13 20:32
You must have reversed the figures. There is no NUA if the value is less than the cost basis. And even if reversed, the cost basis is quite high for NUA to be beneficial (47.4%). If NUA was utilized with the figures reversed, ordinary income tax would be due on 27k of cost basis, which was the cost of shares purchased within the plan.