NUA and 72t

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L1: NUA and 72tDear Friends, Can an individual, age 49, take his appreciated stock in his 401(k) under section 72(t) and avoid the early withdraw penalty and not lose his NUA since it is not a lump sum distribution?Ralph Mendez2009-01-05 16:43, By: Ralph, IP: []
L2: NUA and 72tWhile this is possible, it does present a lot of administrative hurdles. First of all, your 72t plan would have to be emanate from the 401k and most employer plans do not provide any support for assisting you in meeting all the requirements. Any change in the distribution options the plan adopts prior to completing the 72t in the next 10 years would bust the plan, because the last thing the administrators think about is that someone would be using their plan for a 72t.Next, there are two types of NUA, including a very limited form of NUA when there is no LSD. It is limited to employee contributions and excluded employer contributions, therefore the amount of NUA is depressed. However, whatever portion of the share price that does represent the limited NUA available would qualify for LT cap gain tax rates. Over 10 years, if the shares recover along with the market, the portion of your 72t distribution eligible for LT cap gain may well increase.Still, starting a 72t from an employer plan is risky and probably not worth the tax break unless you are getting some support and buy in from the plan and your limited NUA is still considerable and proper diversification is not a problem.2009-01-06 02:48, By: Alan S., IP: []

L3: NUA and 72tThere areseveral requirements for the NUA ( ” NET UNREALIZED APPRECIATION” EMPLOYER STOCK”) provisions of the tax code. If you receive appreciated stock or securities as part of a lump-sum distribution, then the net unrealized appreciation (i.e. increase in value since purchase of the secxurities in the plan) is not subject to tax at the time of distribution, unless you elect to treat it as taxable ( in rare circumstances).For purposes of the NUA exclusion, a lump-sum distribution isthe payment within a single calendar yearof the plan participant’s entire balance from all of the employer’s qualified plans of the same kind (i.e. all of the employer’s profit-sharing plans, or all pension or stock bonus plans).The distribution must be made under 1 of these 4 criteria :1. Participant must be at least 59 1/22. Employee-participant must have separated from service by retiring, resigning, changing employers, or being fired3. Self-employed participant must have become totally and permanently disabled, OR4. Be a beneficiary of a deceased plan participant.If there is ANY BALANCE at the end of the calendar year, there is no lump-sum distribution, and the NUA exclusion is not available.Assuming you do not waive the NUA exclusion, you are taxed at ordinary tax rates only on the original cost of the stock when contributed to the plan. Tax on the appreciation is delayed until the shares are later sold by you (or your beneficiaries) at a price exceeding the cost basis, and the gain attributable until the distribution date will be taxed at long-term capital gains rates. Any additional gain will be taxed at short-term capital gains rate if sold within 1 year of the distribution date. Sales after 1 year will be entirely at long-term capital gains rates above the initial cost basis.2009-01-06 05:54, By: dlzallestaxes, IP: []