NUA distribution cost basis, when part of the stock was puchased using after-tax assets
Is this how it works? In a company savings plan, if company stock was purchased using part after-tax asssets and part pre-tax assets, are both the after-tax and pre-tax amounts included in the original cost basis for taxing the NUA distribution. I read the after-tax amount somehow effectively incerases the cost basis, and I don’t see why that would be so.
Permalink Submitted by Alan - IRA critic on Tue, 2022-10-04 04:22
The cost basis is what the plan paid for the shares when purchased, regardless of whether pre tax or post tax funds were used for the purchase. At the time of distribution, plan accounting determines how the after tax dollars in the plan are applied. Usually, the after tax dollars are used to reduce the taxable portion which shows in Box 2a of the 1099R. However, a plan could instead allow the taxpayer to apply the after tax balance in the plan to other assets, allowing other assets to be rolled to a Roth IRA tax free. If this is done, then taxes will be due on the entire cost basis of the shares, as the after tax contributions are applied to assets other than the company shares. Note that in both cases the amount of NUA per share remains unaffected.
Permalink Submitted by Ron Evans on Tue, 2022-10-04 15:40
Thank you, Alan. Makes sense.