What is Net Unrealized Appreciation ("NUA")?
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- เผยแพร่เมื่อ 15 มิ.ย. 2024
- Explanation of Net Unrealized Appreciation ("NUA") and how it can reduce your taxes.
Links in this video:
Retirement Planning Insights - www.tenonfinancial.com/newsle...
Taxes in Retirement - / taxesinretirement
#RetirementPlanning #FinancialPlanning #NUA
DISCLAIMER: This video is only helpful hints and education. It is not specific tax, legal or investment advice. Before considering acting on anything you see in this video, first consult with your tax, legal or investment advisor. While the information expressed in this video is believed to be accurate, neither Andy Panko, CFP®, RICP®, EA nor Tenon Financial LLC make any guarantees to its accuracy.
One of the best explanation videos on a complex concept. This was phenomenal
Thank you!
A good, clear, and straightforward overview. Thanks.
100% agree this is the best NUA video
Thank you!
Hey Andy, i'm currently a senior in college in a CFP approved education program. I was extremely confused before watching this video. The $300 textbook has NOTHING on you. Thank you!
Thanks Larry! I'll send you a bill for $200 and we'll call it even :)
RPD..I found your video to be very eductional..I have a situation where you explaining NUA makes sense of my financial dilemma...also..that 55 rule should be looked into..you mentioned you have a video on it so I shall click on that and observe...thankyou
wow you are freaking aamzing such a great explanation thank you so much.
Thanks! It's the cheezy graphics that really drive things home :-)
Great video! Thank you very much.
Excellent, thanks.
A clear explanation. 👍
Awesome video!
Thank you!
Hi Andy, Very informative video. Thank you. Well needed for my decision. What would your advice be for an account that has all employer securities company stock shares in the 401k that boosted substantially with the economy supply and demand? (lets say the 401k was worth $30k two years ago and now $200k from company stock price share increase gains for someone at the age of 63) Full NUA better? Would all of it just move to a taxable brokerage account? would taxes on the cost basis be taken out right away? would it be safe in the taxable brokerage account or decrease with market changes? is it best to do a full distribution?
Great questions. Sorry, but I can't give specific advice about what you should or shouldn't do, or what would be best for you as that will all depend on lots of things like the rest of your taxable income in the year of the NUA distribution, your risk tolerance and desire to keep the stock (or not), your projected tax savings by based on forecasted income and tax liability in future years, etc.
But if you do choose to do the NUA transfer, yes, all of the company shares would transfer to a normal brokerage account, and any other investments in the 401(k) that aren't company stock would need to transfer/rollover to another 401(k) or to an IRA. In the year of the NUA distribution, the cost basis of the shares would be fully taxable income to you. And then whenever you eventually sell the shares within the brokerage account, you'll have to pay long term capital gain tax (at the federal level; plus whatever state income tax, too) on the amount of the NUA. Additionally, if you have any other gains from the time you did the NUA transfer until when you sell the shares out of the brokerage account, those gains will be taxable, too.
As for whether or not the stock will be "safe" in a brokerage account; it won't be any more or less safe than in the 401(k), at least with regards to the changes in price of the stock. In other words, the stock price will move around as much in the brokerage account as it did while in your 401(k)...the riskiness of the stock is no different between the accounts.
Hi Andy, Great Video. I'm 58 years old and planning on doing a NUA in May when I retire. The dividends of the company stock have been reinvested for many years. Are these dividends handled separetely or differently when performing an NUA? Thank You
Hi Ron. The dividends that were reinvested are all part of your company stock position at this point. As such, those positions can also be rolled out to a normal brokerage account as part of the NUA rollover. The basis or cost of each position will be whatever the stock price was when the dividends were paid and reinvested. The 401(k) administrator should presumably have record of all the basis info.
Hi Andy, just found this informative video. I understand the beneficiary of the NUA stock does not receive a step-up in basis, but must pay ordinary incomes taxes on the NUA portion. However, does the beneficiary receive a step-up in basis on the gain of the NUA stock shares post-transfer to the brokerage account? [i.e. $200k cost basis, $200k NUA (beneficiary owes ordinary income tax), $100k subsequent gain at death) - what is beneficiary tax obligation on the $100k gain?]
Yes, the gain that occurred after the NUA transfer would be stepped-up.
Great video! How does the custodian of the brokerage account know how to properly record cost basis and the NUA once they receive the employer stock? Does the 401k company send this information with a rollover check to the custodian?
I think it depends on the 401(k) administrator and the receiving custodian of the brokerage account. But generally assume you're responsible for getting a record of the basis from the 401(k) administrator and manually giving it to the new broker and ensuring they update the basis accordingly. Below is a quick comment from the Ed Slott group (the authority on taxation matters around IRAs and retirement plans) summarizing the same.
Separately, if at all possible, try to roll the shares to a custodian that's the same as the custodian of the 401(k). For example, if your 401(k) is at Fidelity and the rest of your investment accounts are at Vanguard (or wherever), I think it's easiest (and safest) to first open new accounts at Fidelity and let Fidelity internally do the 401(k) rollovers to and IRA and brokerage account at Fidelity. That way, there is theoretically less likelihood of operational mishaps and more likelihood of them getting the basis info shared and reflected corrected in the brokerage account. And then after the rollover is all done and settled and basis info is reported in the brokerage account, then you can roll those accounts over to Vanguard or whatever other custodian you prefer.
www.irahelp.com/forum-post/35945-nua-basis-reporting-brokerage-house
@@RetirementPlanningEducation great thanks for the thorough response!
Since you have to hold the shares for a year and a day to get the capital gains rate, does that clock start over (or begin) at the time you transfer them to the brokerage account? I ask because there could be a risk of the stock going down in that year and a day (where as you could cash immediately in the 401k).
The original amount of NUA can be sold once you roll it to the brokerage account and it will be taxed as LT capital gain without needing to wait the year. It's only any additional gains that need to sit for a year, after rolling the shares into the account, to get the LT capital gains rate instead of ST
@@RetirementPlanningEducation Great to hear! Thanks for the response and video!
Hi Andy, Great Video. I have been searching for this for a long time and was not getting the answer, but your video explains it clearly. Quick question, if I am keeping my 401K AS IS and not at retirement age, within 401K, if I sell the employer stock and purchase other mutual funds as part of my rebalancing, does NUA apply then too? Thank You
No, NUA would not apply in the case of selling the company stock within the 401(k). The sale of the stock within the 401(k) won't be a taxable event in and of itself, but you also won't get any of the favorable long-term capital gain tax treatment on the appreciation of the shares. Functionally, it would be no different than selling any of the other mutual fund or mutual fund-like investments within your 401(k); the transactions aren't taxable at the time. Whenever you eventually take a distribution from your 401(k) (or if you eventually roll the 401(k) to an IRA and then eventually take distributions from that), you'll be taxed on those distributions. And they will be taxed as ordinary income; not the reduced long-term capital gains tax rates.
Thxs A lot. I want to know if there’s a way to reach out to you and probably take help off your services. I can see that you’re pretty knowledgeable and experienced in this area. I have one more question, I am far away from retirement age, let’s say after I leave my employer and roll over my 401(k) to Ira, that 401(k) had employer stocks, will I able to roll over the stocks for now into Ira and at the point when I am planning to sell those Shares then I can move those shares to brokerage and use NUA. Not sure once I move those companies talk to Ira if I lose the capability of using NUA.
@@arravwalia2992 No, you can't later due NUA out of an IRA. You can only do an NUA transfer when you take money out of the 401(k). AND, you have to completely distribute that 401(k) in its entirety that year; you can't just transfer out the shares and leave behind the rest of the stuff.
@@RetirementPlanningEducation One more small question, from my 401K plan, if I liquidate all the Mutual funds and rollover the cash to IRA account but leave my company stock in 401k AS IS for now but then later (in a few years), I move to the company stock to brokerage to get the benefit of NUA, is that possible?
@@desipacer No. NUA is an all-or-none thing. In the year you want to take advantage of an NUA transfer of company stock out of your 401(k) into a normal brokerage account, you need to fully distribute that 401(k) in it's entirety that same year. Which implies you'd have to rollover the non-company share assets (or cash liquidation proceeds) in your 401(k) out to an IRA in the same year you transfer the shares to a regular brokerage account, and vice versa.
If I convert the nua to a trading account, do I have to withdraw a specific amount per year? Or do I have to withdraw all of it at once? What’s the age requirement for withdrawals? Thanks
Once the appreciated shares are transferred from your 401(k) to your normal brokerage account, no, there is requirement to then have to sell the shares out of the brokerage account. Because the transfer of shares to the normal brokerage account gets them out of the qualified retirement account world. And once out of the qualified retirement account world into the normal brokerage world, there are no required minimum distributions or anything like that.
Separately, the non-NUA positions that you roll to a traditional IRA will have normal required minimum distribution rules apply.
transfer the NUA to a taxable account - pay federal taxes at personal income rate level on the cost basis amount
transfer the other investments into an IRA account. No taxes paid, until withdrawals are executed.
since the sale of the NUA would only pay for long term capital gains, I want to sell a specific amount each year. If this yearly sales amount is under $80.8k (based on this year’s long term CG rules), do I pay any taxes on that yearly sale of Nua stock? Or do I have to sell the entire allocation of Nua shares at once?
Once the NUA is transferred to the taxable account, yes, you can then sell as much or as little of those shares as you want over time.
And yes the sale of NUA will be long-term capital gains (though additional gains above and beyond NUA may be long-term or short-term, depending how long you held them in the taxable account).
As for the $80k thing, your TOTAL taxable income for the year needs to be under that for to benefit from the zero tax on LT capital gains. For example, if you have $120k of wages and $80k of LT cap gains, the $80k of cap gains will be taxed at 15% federally (plus whatever state income tax).
Can someone who is say in their 40's and doesn't work for their company anymore. Can I roll everything into an IRA and leave the company shares subject to NUA in my 401k until I turn 59.5, then use the NUA distribution?
Unfortunately no. You can’t get NUA treatment of the shares unless you completely empty out the 401(k) within the year
To qualify for an NUA, one of many have to be satisfied but I have a question on the event qualification section below specifically separation from employee as this is the only one I'm qualified for out of the other events.
Below are some information.
1. 401K contain common stocks
2. Separated with employer 15 years ago.
3. Currently employed and have a 401K account with my current employer
4. Age is mid to late 40s
Assume I meet all other qualifications. Do I qualify for NUA?
Thank you in advance!
Since you're under 59 1/2, you'd still be subject to the 10% early withdrawal penalty on the amount of NUA distributed out to a brokerage account.
@@RetirementPlanningEducation Greatly appreciate you responding. I've read that to qualify for an NUA "separation of service", again focusing on this at this would be the only event I may qualify for, from employer needs to be after the age of 55. With my current age before the age of 55, I wouldn't be qualified yet for an NUA. Is my understanding corrrect? Thanks!
@@drfrost9092 You would qualify to do an NUA distribution, but you'd have to pay 10% early-withdrawal penalty on it since you're not yet at least 55
@@RetirementPlanningEducationdoes the rule of 55 not apply here?
@@killerXover707no, since the person is only in their 40s
NUA doesn't make sense if you don't plan on staying with your company for you're entire life or it will just be treated as one when you rollover your 401K to your new employer. You could keep it with your old employer but that's a bad idea.
Thanks much for the video. The cost basis of the transfer, lets say $50,000. Is that cash available to me immediately? Not taxed again at long term?
Do you mean the cost basis of the shares that were inside the 401(k) and transferred out to the normal brokerage account? It's not available as cash until you sell the shares. Otherwise, if you don't sell the shares, they will stay as shares held within the brokerage account.
@@RetirementPlanningEducation Yes. So when I do sell those shares there is no further tax?
@@leonpiette5180 Depends on how much you sell them for and what the share price was when you did the NUA transfer. If the total share value when you did the transfer was $70k, for example, and you then sell them immediately for $70k in the brokerage account, you'll pay long term capital gain tax on that $20k of NUA, and the $50k basis won't be taxed upon the sale (as that $50k of basis is already taxable as ordinary income in the year you do the NUA transfer out of the 401(k) into the brokerage account).