How accomplish a 401k close & transfer using Net Unrealized Appreciation (NUA) tax treatment
I'm planning on using the Net unrealized appreciation (NUA) tax rule when I close out my 401k in a future year.
How do I accomplish this in ESPlanner Plus?
Example situation: $130,000 value of stock in 401k, cost basis $70,000 (taxable event at transfer to taxable account ), NUA $60,000 (after 12 months taxed as Long Term Capital Gain
I've tried the following but ESP doen't appear to handle the taxs correctly:
Retirement Accounts > Assets 401k $130,000+
Retirement Accounts > Special Withdrawals $130,000
Special > Special Receipts > 'cost basis fm 401k close' $70,000 TaxRelated
Special > Special Receipts > 'NUA fm 401k close' $60,000 nonTaxRelated
I believe the issue is I can't figure out a way to tell ESP that only $70,000 of the $130,000 withdrawal is a taxable event. Thus ESP is predicting my tax will be much higher than it actually will be.
How can I tell ESP what I'm planning ?
Here's an extract explaing NUA ...
If you are holding your employer's stock in your employer provided plan, a special favorable section of the tax law allows you to to pay capital gains tax rates on the stock if you are separating from service with your employer, the plan is distributed in a lump sum, and the stock was purchased by your pretax contributions and employer matches. The Net unrealized appreciation (NUA) of the stock is not taxed upon distribution, and is taxed at capital gains tax rates when sold. Only the basis of the stock is recognized as a taxable distribution.
Example: Chris is set to retire from his job with Coca-Cola,Inc. His 401(k) contains $1.1 million dollars of Coca-Cola stock. The 401(k) administrator informs Chris that he has a basis of $300,000 in the stock and $800,000 of NUA. Instead of rolling the 401(k) over into an IRA, Chris elects to take out the stock under the NUA tax rules. The $300,000 basis is deemed a distribution from the 401(k) and is subject to income tax, and if Chris is less than 55, a 10% early withdrawal penalty tax. The $800,000 NUA is not taxed upon distribution. If Chris sells the stock upon distribution, it will be taxed as a long term capital gain. If Chris holds on to the stock, he can defer tax until he sells. Any further realized short term gain on the stock will be taxed as a short term capital gain; any further realized gain held for more than a year is taxed as a long term gain.
Note that the determination of basis and NUA is made by the employer or the plan.