Questions on 401k rollover, NUA, After tax offset etc.

[gerntz]

Wow... thanks a bunch!!!

I have been holding off doing this because I have about $80K in taxable amount and did not want to get that tax hit yet... but if I can roll it over I just might....

Now I have to wait for the repeal and replace when my Obamacare credit is not in jeopardy...

You've lost me. The whole purpose is to avoid any immediate income to tax.

 

[Slow But Steady]

I'm the OP, so I thought I'd let everyone know where my wife and I landed on this issue.

Alan S. on the Fairmark forum explained that since my wife's 401k includes some after-tax company shares, we could use the appreciated value (not just the basis) of those shares to offset the basis of the pre-tax shares. That's a huge advantage.

He also said that alternatively, we could roll the appreciated shares into a Roth IRA without paying any tax on the appreciation. That's also a great opportunity.

We decided that for us the best option was to roll the after-tax shares into a Roth. At the moment, we have a pretty small percentage of our assets in Roth IRAs, so this path will double that percentage and give us more flexibility in the future.

We will pay more tax in 2017, but we'll avoid more tax in the future. Part of what we'll be doing to avoid future tax is to contribute to a donor-advised fund some shares on which we have 500 or 600 percent appreciation. The contribution will amount to five to seven years of our usual charitable giving.

Thanks again to everyone who helped.

 

[Texas Proud]

You've lost me. The whole purpose is to avoid any immediate income to tax.

But if I had a big distribution I think I would lose ACA credits... I might have to run it through the tax program to make sure.... if I do not, then I can do it now and not pay taxes...

If I do lose the subsidy, then I can wait until they get rid of that subsidy and then start to deal with converting my 401(k) and after that to converting tIRA to ROTH...

 

[gerntz]

But if I had a big distribution I think I would lose ACA credits... I might have to run it through the tax program to make sure.... if I do not, then I can do it now and not pay taxes...

If I do lose the subsidy, then I can wait until they get rid of that subsidy and then start to deal with converting my 401(k) and after that to converting tIRA to ROTH...

OK. I'm not in the ACA system, so don't know anything about it. But if Form 1040 line 16b is 0, I have a hard time understanding how lump sum distribution size would matter.

 

[Texas Proud]

OK. I'm not in the ACA system, so don't know anything about it. But if Form 1040 line 16b is 0, I have a hard time understanding how lump sum distribution size would matter.

OK... decided to look..... it is not included in MAGI....

But, tax free interest is included which is why I was wondering if this tax free 'income' was included...

 

[Slow But Steady]

This is the OP, writing to correct something I think I mis-stated in an earlier post. In Post 27, I said, "He (Alan S.) also said that alternatively, we could roll the appreciated shares into a Roth IRA without paying any tax on the appreciation. That's also a great opportunity." I believe that part of post 27 was not correct.

I had misinterpreted this statement Alan S. made: "You cannot use the same shares for both NUA purposes and rollover purposes. In other words, you cannot sell NUA shares and then roll the proceeds over to an IRA. The IRS has also ruled that any NUA shares rolled into a Roth IRA are taxed as if they were rolled into a TIRA first, ie. at ordinary income rates for the taxable portion and for the NUA portion."

Here's the short thread in the Fairmont forum: Fairmark Forum :: Retirement Savings and Benefits :: Questions about NUA, after-tax company shares, and etc.

I'm just adding this new post because I don't want a future reader to rely on bad information from me.

 

[Texas Proud]

Thanks for the clarification....


However, I did not read that into the various posts...

What I had read (not just yours) was that when you got your distribution with the NUA shares there are two components... the basis and the gain...

The gain 'shares' will remain in a taxable account but no tax is due on them until you sell....

The basis 'shares' can be rolled over into a ROTH and no tax is due the year you do the distribution....

An example... you have $200,000 current value.... your cost basis is $50,000... you ask to get your $200,000 out... they move it all to a taxable account and because of this you will get a 1099 for the $200,000 transfer saying $50,000 is taxable...

However, before the deadline (is it 60 days?) you transfer the $50,000 to a ROTH and when you fill out your tax return you check that you rolled the money over into an IRA.... so it is not taxed....