The Lump Sum Trap: Why Taking a Partial Distribution Kills Your NUA Election

Описание: We are performing a forensic review of "Net Unrealized Appreciation" (NUA)—the only section of the tax code that allows you to move pre-tax retirement assets into a taxable account without paying Ordinary Income Tax on the growth. If you hold highly appreciated company stock (like Amazon, Apple, or Google) inside your 401(k), a standard rollover to an IRA is a mistake that could cost you six figures in taxes.

As The Finance Observer, I analyze the specific intersection of IRC Section 402(e)(4) and Revenue Ruling 75-125 to show exactly how to segregate your "Cost Basis" from your "Appreciation" and the three strict rules you must follow to lock in the 20% Long-Term Capital Gains rate.

FORENSIC BREAKDOWN:

0:00 The Fork in the Road: Rollover vs. NUA. Why moving company stock to an IRA converts 20% Capital Gains into 37% Ordinary Income.

01:28 The 20% Spread: The math behind the arbitrage. Comparing the top tax bracket (37%) to the NUA cap (20%).

02:17 The Three Gates: The strict IRS requirements for eligibility.

The Triggering Event (Separation from Service / Age 59.5).

The Lump Sum Rule (The account must hit $0.00 by Dec 31st).

The In-Kind Transfer (Stock must move shares-to-shares, not cash).

03:47 The Aggregation Trap: Why forgetting about an old Profit-Sharing Plan can disqualify your 401(k) distribution.

04:44 The Basis Test: When is NUA worth it? Calculating the spread between your Cost Basis and Fair Market Value.

05:36 The NIIT Exemption (IRC § 1411): Why NUA gain is exempt from the 3.8% Net Investment Income Tax (a hidden bonus for high earners).

06:14 The "IRD" Warning: Why NUA does not get a "Step-Up in Basis" upon death (Income in Respect of a Decedent).

07:03 Form 1099-R Audit: How to check Box 6 (NUA Amount) to ensure the custodian reported the election correctly.

DISCLAIMER: I am The Finance Observer. This content is for educational purposes only. Net Unrealized Appreciation is governed by IRC Section 402(e)(4). The Net Investment Income Tax exemption is found in IRC Section 1411. Estate rules for NUA are defined in Revenue Ruling 75-125. Always consult a qualified Tax Planner before distributing 401(k) assets.