SEPP vs NUA or Both?

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L1: SEPP vs NUA or Both?50 (DOB Sept 1963) and planning to retire early by year’s end. Married (DOB May 1965), no children. Have saved $2.2 M in 401K & SIP, however, the vast majority ($2.0 M) remains in highly appreciated Co. stock (S-Corp). Lots of issues & tax analysis to contend with in deciding to roll-over to IRA vs claiming NUA treatment on all or a portion of stock. QLSD appears to be my best option. Total Combined Basis = $451K. ( Co. contribution stock basis = $55K; my stock purchase basis = $396K) Would like to generate $90-100K for living expenses, and pay-off existing debt of $149K if practical in the short-term. Desire to sell the home ($300K) and travel 3-5 years down the road. Am leaning toward creation of a SEPP and NUA treatment but not sure which is best long-term or how much stock to use NUA on, if any? Very flexible to options with a tight timeline for year-end goal of retirement. With new SEPP, would like a full(no stub year) Dec. 2014 distribution. Just tired of working and need a plan.2014-06-02 21:39, By: heartysavor, IP: []
L2: SEPP vs NUA or Both?NUA is usually very beneficial taxwise, but is very complicated. I suggest that you buy the J K LASSER “YOUR INCOME TAX” ( $25), and study pages 166 and 167 for the discussion and examples of NUA. You must do a LUMP SUM DISTRIBUTION of the entire account.
Since you are under 59 1/2, you will be subject to the 10% penalty for an “early distribution” on the cost basis of the distribution. All sales after the NUA distribution will be taxed as LONG-TERM GAINS, even if sold the next day.
Usually these transactions are done with publicly-traded securities. I’m not sure if there are any brokers who will handle closely-held S Corp shares. ( I don’t know of any public S Corps.)
You have too many issues to go into in this forum. I suggest that you retain an qualified experienced tax advisor who will be well worth your investment to check on all of the applicable nuances so you can make an informed decision.
Usually I have dealt with public securities, and then made sure that the brokerage account was a margin account so that the client could borrow TAX FREE using his portfolio as security for the “loans”. This provides tremendous cash flow and tax planning opportunities.
I have not dealt with any situations where the NUA included employee purchases, only employer purchases, within the retirement account, and would have to research any special aspects of that situation.2014-06-02 22:10, By: DLZALLESTAXES, IP: []

L3: SEPP vs NUA or Both?Curious what you mean by “SIP”, also whether an ESOP held the S corp shares.2014-06-03 00:53, By: Alan S, IP: []

L4: SEPP vs NUA or Both?Maybe he means “SEP” (“Simplified Employee Plan”), which is really a “SEP IRA PLAN” (i.e. “SIP”).
I assume that “QLSD” stands for “Qualified Lump Sum Distribution”.
(P.S. I hate acronyms because too often the reader thinks it means something different from what the writer meant.)2014-06-03 04:26, By: DLZALLESRAXES, IP: []

L5: SEPP vs NUA or Both?”SIP” = Savings Investment Plan. The S-Corp is not a public company and the ESOP holds the stock.
I am working with my CPA and a financial planner. I think at the end of the day a straight SEPP with the full balance is certainly the less complicted way to go…but long-term, I think the dollars will appreciate more taking the tax hit up front.I think I will be bound by whatever policy the company will dictate. I think they can force me to convert the stock to cash at time of separation from service.2014-06-03 15:05, By: heartysavor, IP: []

L2: SEPP vs NUA or Both?Did NUA on dad’s XOM 401(k), parents live off the dividends and SS payments and don’t have to worry about RMD. He was in his 60’s however and XOM has an active market. So like dlz mentions, you have that 10% early distribution to contend with amongst others.2014-06-03 14:16, By: brkr12002, IP: []

L3: SEPP vs NUA or Both?You are correct. With S Corp ESOP shares, at separation you will have to sell (put) the shares back to the plan, but the sale still qualifies you for NUA and LT cap gains. While the sale eliminates your exposure to a single issue, it will also result in your being taxed on the cost basis and the LT cap gains in the same year. Tax deferral is lost. This will really inflate your AGI and result in other tax consequences such as loss of deductions or personal exemptions. You also have that 10% penalty on the cost basis. You should be careful to avoid another error, which would be utilizing some shares for NUA, but then trying to roll over the cash from the share sale of the NUA sharesto an IRA. Proceeds arising out of an NUA sale are not eligible for rollover, but if you want to avoid the high AGI you should be able to elect the number of shares you want to use for NUA, and while the other shares must also be sold inside the plan, if you did not utilize NUA on those shares, the proceeds from those non NUA shares is eligible for IRA rollover in the process of completing your qualified LSD in a single tax year. Note that determining cost basis of S Corp shares in an ESOP is very complex, so hopefully the ESOP administrator will get the cost basis correct because you do not want to have them discover an error in the basis after the 60 days is up to bail out of NUA and complete a rollover.
Again, while the above only covers certain issues, the general direction appears to point toward using NUA on a limited amount of the shares and rolling over the rest of the balance. Not sure if the SIP is even a tax qualified plan??
2014-06-03 22:55, By: Alan S, IP: []