Net Unrealized Appreciation

Len

I can't figure out how to get Quicken to show the taxable income created when removing employer securities from a 401(k) account.  For example, if you have $1000 market value of Apple stock, but it cost you only $250, you can remove it from the 401(k) and place it in a brokerage account.  You would pay income taxes on the $250 in the year your remove it, then if you sell any of the stock later you pay capital gains on the sales price less the cost basis of $250.  I can remove/add securities to get it from one account to the other, but the taxable income part has me baffled.  Anyone out there have a simple solution, so I can have a "DOH!" moment?  Thanks!

J_Mike

Len

See this FAQ for a discussion of retirement distribution taken as a  transfer of stock;
https://getsatisfaction.com/quickencommunity/topics/faq-how-to-do-an-ira-distribution-as-a-transfer-...

Post back if you have further questions.

Tom Young

Since you used the term Net Unrealized Appreciation (NUA) which has a specific tax meaning I'm not sure if recognizing the full value of the stock is appropriate. 

In the case of highly appreciated employer stock you don't have to recognize the NUA at the time of distribution into a brokerage account.  Your 1099-R will show a distribution of the market value of the stock when distributed, but you'll be taxed only on the basis.  The NUA is not taxed until you actually sell the stock out of your brokerage account. 

Assuming the stock price continues to rise from the time of the distribution to the date of sale, the NUA will be taxed at LTCG rates, irrespective of how long you held the stock in the brokerage account.  Gain above the NUA will be long or short term depending on how long you held the stock after distribution.
If this is your situation then you don't recognize the NUA until you sell, just like an appreciated stock that's you bought through your broker, but haven't sold.

J_Mike

Len

The nuance of NUA went right over my head - was not familiar with this interesting provision. Toms' response sent me on a search.

Your question was how to enter this in Quicken.
Transfer of the shares is straight forward using the Shares Transferred transaction.
One can specify the acquisition date and cost basis in the Add Shares transaction in the destination brokerage account.

Accounting for the taxable income is not as straight forward.
My thought would be to enter a split transaction in the brokerage account.

The first split would be the taxable "income" ($250 for your example).
Create a unique income category for this "income"; e.g., "NUA Adjustment" or such.
Assign tax line item "1099-R:Total IRA taxable distribution".

The second split would be a negative amount offsetting the "income" (-$250 for your example).
Category for this split would be a transfer back to the account itself (the $250 just disappears).
Net of this transaction is zero.

QWins tax reports will recognize the income.
You are set for eventual sale of the transferred shares - gains to be taxed at the LTCG rate.


Maybe one our more creative posters can come up with a better way of recording the taxable income.

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Edited to correct tax line assignment.