Age 55 Rule & NUA application

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L1: Age 55 Rule & NUA applicationGentlemen – I am 54, will be 55 in March 2009, 29 yrs. with sameemployer. If I elect toseparate under the “55 rule” next year- how should I play out the NUA on my company stock, or do I – since the money stays in the company administrator (Vanguard)?I have about 300k in highly appreciated (oil)company stock. My total 401k plan is about $650k.
My pension as alump sum will be roughly $280k – how should I take those monies ?
Thanks – Jim
2008-03-12 11:19, By: Jim, IP: [146.23.68.42]

L2: Age 55 Rule & NUA applicationHello Jim:
You have provided way too little information to provide a realistic answer. As a very general rule, your trustee”s basis in your shares of company stock needs to be 1/3rd or less of its present market value in order to make any decent tax gains by electing NUA treatment of those shares.
In general, these situations need to be modeled out in Lotus / Excel over a 5 to 10 year period to see which options are the most beneficial to you. maybe you can do it or otherwise hire some one to do it for you.
TheBadger
[email protected]

2008-03-12 14:16, By: TheBadger, IP: [72.42.66.180]

L2: Age 55 Rule & NUA applicationBased on the account values, you have about 1/3 of the total in one stock. I would be very inclined to take the opportunity of today”s $110 price per barrel to diversify out of about half the shares, big NUA value or not. Even the LT cap gain rate including the -0- rate in 08-10 if you qualify is not worth a large loss of value. If the company offers other than average cost accounting, then sell the higher cost shares and keep the lower cost shares for NUA.
The cost basis may change very little due to dividend reinvestment, so you would then have a basis to have a detailed analysis done of your entire retirement and estate planning financial picture as suggested by the Badger. This is a very complex analysis involving dozens of factors, not the least of which is a guess regarding the life of today”s very low LT gain rates.
DId not understand why the money would stay with Vanguard, as NUA shares must be distributed to a taxable account. Perhaps Vanguard also supplies your brokerage account???2008-03-12 14:42, By: Alan S., IP: [24.116.165.60]

L2: Age 55 Rule & NUA applicationIn addition to the other answers, if you “separate from service” in January 2009 or later, then you can take withdrawals from your 401-K without the 10% penalty for IRA distributions before 59 1/2.
Get J K Lasser “YOUR INCOME TAX 2008” to read an excellent discussion of NUA. As mentioned,ASAP ask your HR department for the “employer”s cost basis” in your NUA shares. However, one point made in the other answer is incorrect. To utilize the benefits of the NUA provision, “you must make a LUMP SUM DISTRIBUTION of the entire balance within the same calendar year.” “Taking 72-T distributions, in-service distributions, and required minimum distributions after separation from service will cause the distribution of stock to fail the lump sum distribution test.” “You must distribute the SHARES OF STOCK. Seling the stock while still in the plan eliminates the NUA benefit.” Whenever these shares are sold, whether the next day or several years later, the gain is taxed at the special LONG-TERM capital gains tax rates, on the difference between the “employer cost basis and the Fair Market Value on the date of the distribution. AnyFURTHER gains from the date of distribution until the date of sale will be SHORT-TERM capital gains for the first year after distribution. After the first year folllowing the date of distribution, all gains are LONG-TERM.
The usual procedure for “unwinding” your positions, is to “take distribution” of any “previously taxed contributions” first. Then roll over/transfer the non-NUA amount”in kind” or in cash. That will leave only the NUA shares in the account. Then distribute the NUA SHARES (not cash) to your taxable account (or set up a new one) at your broker.
The chances of using the -0- tax rates in 2008 & 2009for Long-Term capital gains are somewhat remote for single taxpayers because the 15% tax rate is only up to about $ 30,000 of taxable income. It might be more viable for married taxpayers because the 15% rate extends up to $ 65,000 of taxable income for them.But Congress might cancel the -0- rate when they see the billions in taxes they will lose thru aggressive tyax planning.
2008-03-12 16:43, By: dlzallestaxes, IP: [141.151.87.108]

L2: Age 55 Rule & NUA applicationGuys – Here is the cost basis info:
Market value – # shares – cost basis
ESOP $133,178 1535$27,132
Common stock $130,3031502 $66,002
After tax portion(common stock) $20,208 233$10,241
All my plan dollars are pretax (except as above). I”m married with last year AGI $93k. (i”ve never made a penny over 55k and feel I have been a model layperson investor).
Now Vanguard said I should wait until 59 1/2 to take the NUA because: I have to (sic.) roll the shares into an IRA so selling the stock at 55 would incur the 10%penalties ? Again your input is most appreciated.
Jim
2008-03-13 07:22, By: Jim, IP: [146.23.68.42]

L2: Age 55 Rule & NUA applicationHello Jim:
Now that I am posting I can not see your last post; so from memory:
1. There is opprtunity to use NUA on tyour ESOP shares but most likely not ont he other two groups of company shares.
2. Vangaurd does not know what they are talking about.
3. Yous situation is complex enough that you should seek individual professional help.
TheBadger
[email protected]
2008-03-13 07:34, By: TheBadger, IP: [72.42.66.180]

L2: Age 55 Rule & NUA applicationAs stated in my reply above, take a distribution of your 233 shares of “after tax” stock. There will be no tax on that when distributed. Ultimately you will have a capital gain in excess of the $ 10,241 cost basis. THESE ARE NOT NUA SHARES.
The 1,502 shares with a cost basis of $ 66,002 are eligible for NUA distribution, but I do not think that it is feasible to pay $ 16,500 to $ 20,000 in taxes “up front”. I would have to do calculations to justify otherwise.
The 1,535 shares in the ESOP are a prime candidate for NUA distribution. You will include only the $ 27,132 in your current income in 2009 when you retire and separate from service. You should have limited income in 2009 working for only a couple of months, depending on your wife”s earnings. Your tax will be only $ 4,000 on this if your taxable income for 2009 is under $ 65,000 (gross income of about $ 85,000 before the stanard deductioon and personal exemptions).
I specialize in this area. Contact me offline at [email protected] or call 610-825-3366.
There is additional tax planning todo which could result in the sales of the NUA shares to be taxed at only 5%, rather than the 15% special capital gains tax rate, and possibly even ZERO if Congress doesn”t change the tax law by then. Timing of the sales of these shares in whole or part AFTER the NUA distribution can be critical in minimizing you taxes.
Also, if you have the person”s name at Vanguard, I would appreciate having it so that I can arrange to have him/her retrained, and I will talk to Vanguard about the ned for transferring these calls to specialists, or training everyone. ( My daughhter has worked at Vanguard for 15 years, so I have entree to appropriate executives there.)
2008-03-13 11:52, By: dlzallestaxes, IP: [141.152.254.126]