NUA Opportunity?

Submitted by Bob Foland on Mon, 2022-06-06 22:36

Mark died in May 2021. He had about $600K in his 401(k) of which about half is highly appreciated company stock. The plan administrator has made Mark’s wife, Mary, the owner of the 401(k). She was the sole primary beneficiary.

As I understand it, the funds are still held in the 401(k). There has been no transfer into an IRA. It’s just that Mary is now the owner. (I find that odd, but that’s another discussion.)

Given that Mark’s death was last year, has Mary lost the NUA opportunity, or can she use the NUA strategy as long as we complete all of the transactions this calendar year?



Submitted by Alan - IRA critic on Mon, 2022-06-06 22:53

  • Mary is the beneficial owner with full control of the account, but subject to different rules than Mark had as participant. NUA must follow a triggering event with no specific time limit, and his death is a triggering event. That means that Mary has the option of executing a qualified lump sum distribution for NUA purposes as long as she did not take any beneficiary distribution in 2021, including completing Mark’s 2021 RMD if applicable.
  • As an EDB, she may have a beneficiary RMD due in 2022, and she can take that RMD as part of her LSD so that the distribution of the shares (both the cost basis and the NUA) are applied toward her 2022 RMD if she has one. Note that beneficiary RMDs for a surviving spouse do not start until the year the participant (Mark) would have reached 72 if he passed prior to that year. In that case, she can still do the LSD but it will not offset an RMD if there is no RMD required. 
  • Note that if all else checks out, she can choose NUA on just a portion of the shares, and sell the rest in the plan with no current tax implications. 
  • She needs to determine the cost basis % for the shares. Generally, NUA is only beneficial if that cost basis is under 30% of current value unless she needs distributions for current expenses. In that case, she would save taxes on whatever the NUA was per share since the LTCG rate on the NUA will be lower than paying full ordinary income rates on the entire distribution.
  • As always, diversification should trump tax benefits, so if an unsafe % of her net worth is tied up in shares of one company, she should take steps to reduce that % by selling the shares.


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