RMD and NUA

Submitted by Ed Snyder on Tue, 2022-06-14 14:43

In reference to a post from Aug 15, 2019 “USING NUA FOR AN RMD – 3 STEPS”

My client turned 72 in May and has not taken her RMD. She qualifies for NUA because she has not taken any plan distributions since leaving her company.

Her RMD for 2022 is $34,444. Her cost basis in company stock is roughly $21,000. According to the above-referenced article the steps are as follows:

Step 1: Distribute $34,444 of company stock to the brokerage account to satisfy 2022 RMD.
Step 2: Do a rollover of all non-NUA investments to the IRA.
Step 3: Move the remaining NUA stock to the brokerage account

Question about this.

Is the $21,000 of cost basis the only part of the RMD that is taxable or is the entire RMD taxable?

Thank you.



Submitted by Alan - IRA critic on Tue, 2022-06-14 15:33

  • I disagree with the actual steps. Shares of stock distributed include the cost basis and the NUA per share, both of which satisfy the RMD. Therefore steps 1 and 3 can be combined into a single step. If the total cost basis and NUA satisfies the RMD, then the entire remainder of the account can be directly rolled to an IRA. While the NUA portion is not currently taxable, it does not need to be to count toward the RMD. The NUA will be taxed later on when the NUA shares are sold.
  • Now suppose the amount of NUA shares has a value high enough to satisfy the first 2 years of RMDs. In this case the client could choose to postpone all distributions including the first year RMD to early 2023. If the 2023 RMD was the same, maybe even less due to market losses, she could distribute  68,888 of NUA shares, which would satisfy two years of RMDs, paying taxes only on the cost basis of those shares, and then complete the direct rollover portion of the remainder.
  • There is plenty of flexibility considering that not all employer shares must be used for NUA. But there cannot be a partial distribution of the plan in 2022 and the rest in 2023, because that will not meet the LSD requirement. 
  • Quite complex, but would even be more so if client has any after tax contributions included in the plan. If so, the plan accounting would often apply that to reduce the cost basis of the NUA shares, or might provide the flexibility to assign the after tax amount to the rest of the account, from which a split rollover could be done sending the after tax amount to a Roth IRA, tax free.


Submitted by Ed Snyder on Tue, 2022-06-14 16:30

Combining steps 1 and 3 makes sense to me. But why does the post I referenced say that they need to be done separately?



Submitted by David Mertz on Tue, 2022-06-14 17:35

It seems that the 3-step approach is intended to ensure that there is no mandatory 20% tax withholding with respect to the NUA shares.  However, separate steps 1 and 3 should not be necessary if the plan will distribute just NUA shares in the first step, which should be possible without forcing out additional amounts for tax withholding.  When only employer stock shares are distributed, no tax withholding is required.  (CFR 31.3405(c)-1 Q&A-11)



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