NUA Case Study

Are you approaching age 73? Do you still have funds in your 401k plan? Do you own publicly
traded stock inside of your 401k?
Would having the opportunity to have a lower Required Minimum Distribution (RMD) be of
interest to you? 

The Net Unrealized Appreciation strategy described below is a way to lower your RMD income
for the future by transferring all or part of your publicly traded stock position in your 401k to a
non-qualified account.

Example:
A client is turning age 73 this year and has never moved money out of the 401k plan that she
had with the company from which she retired. In her 401k, about 20% of her total holdings are
invested in the company’s publicly traded stock. She and her husband really don’t have a need
for the RMD income she will be required to take this year.
This client also had a low cost-basis in her stock position. That means that the current value of
the stock in her plan is worth a lot more than what she has invested over time. This client was
able to transfer the company stock position “in-kind” into a non-qualified account. Transferring
“in-kind” means that she transferred the shares without selling out of her stock position. She
then was able to roll over the rest of her 401k into an IRA.
By doing this in this fashion, the client paid ordinary income tax on just the cost basis of the
stock transfer – which resulted in an overall lower tax liability than she would have incurred if
she rolled over the entire amount to an IRA and then took RMD distributions from it.

These funds are now officially non-qualified. That means that she will not have to take an RMD
on these funds as they are no longer in a 401k or IRA.
This strategy also worked out well for her since the non-qualified funds can be passed to her
children and grandchildren without them having to take RMD’s from the IRA. This strategy will
allow her kids to one day have a stepped-up cost basis on those assets.

Overall, she should save money in taxes each year, eliminate having to take income that was not
needed, and is able to pass these funds down generationally without causing a taxable
withdrawal.
Remember, if you are approaching age 73, still have funds in your 401k plan and own publicly
traded stock inside of your 401k, this strategy may be right for you. Contact me today to discuss
your specific situation.

*There are risks to having a concentrated stock position in your portfolio. It is best to work with a Financial Advisor to make sure you are not exceeding that limit. The above is a hypothetical example provided for illustrative purposes only.
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