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NUA (Net Unrealized Appreciation) Transactions

EdC

Looking for guidance for the proper method for NUA from 401k to a regular (non IRA) Brokerage account. Example Scenario: 100 shares of my company ACME in 401k. On Dec 1, 2023 all shares were moved to a dedicated brokerage account as an NUA. Cost basis (average) for these shares is $4 ea. ($400 total). Market value on day of transfer is $10 per share ($1000 total). 1099-R shows $1000 gross distribution (Box 1), Taxable amount $400 (Box 2a) and NUA amount $400 (Box 6) as expected. I must pay tax on the $400 in 2023. Future sales of ACME will be taxed at LTCG rate. What Quicken transactions do I perform to 1) move the shares from the 401k to a regular brokerage account (but not seen as a regular 401k withdrawal that would be 100% taxable), 2) recognize $400 as taxable income from this NUA, 3) end up with 100 shares of ACME in the new brokerage account with a cost basis of $4 per share with an acquisition date of 12/01/2023. Thanks for the help.

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Tom Young

It's been quite a while since I even though about NUA situations and those were always in the contest of "taxes", not "Quicken." I'll assume that the 100 shares were in your file at a cost of $400 and a value on 12/1/23 of $1,000.

Let's see here;

Sell the 100 shares in the 401(k) Account for $400. Distribute the $400 to the brokerage Account on 12/1/23. That will be picked up in the 1099-R as income in 2023.

In the brokerage Account buy the 100 shares for $400 on 12/1/23. Then open the Holdings screen for that Account and change the quote for that stock to $10 per share. That will give you the position you've asked for, though of course what you really want is for the acquisition date to be 1 year earlier that 12/1/23 to get the "long term" position.

To do that, you could make the $400 disappear "magically" by doing an XOut on 12/1/23 for the $400 with the name of that SAME brokerage Account as the Account receiving the transfer. Then do an ADD action for the 100 shares as of 12/1/23 with a basis of $400 and a "Date Acquired" of 12/1/22, making sure the quote for the shares as of 12/1/23 is $10. That will get you into the "long term" position.

Now comes the hard part, something that I don't actually think you can do in Quicken, at least not easily. As you know any appreciation in the price of the stock subsequent to you acquiring it is short term or long term depending on how long you own the stock in the brokerage Account. So if you sell in less than a year from the 12/1/23 you'd have to take some portion (up to the $600 NUA) as long term and the rest as short term. I suppose you might fiddle with the original ADD to get that worked out.

EdC

Thanks Tom… I always have high regard for your replies and insights. Agree Quicken is not really a tax tool… the tax categories and the embedded Tax planner tries to make it be one. Various tax reports from Quicken can be helpful.

Your suggestion is an interesting approach and should work. Not giving it a lot of thought… only thing that comes to mind is that any performance reports run on the 401k for 2023 would be negatively impacted since it would look like shares sold at a value less than actual transfer value. A necessary evil if I want the income reporting more reflective for tax reports.

As you note, the NUA rules actually say that any sale (even if less than 1 year) are taxed at the long term capital gain rate, and you are right that to "trick" certain aspects of Quicken's reporting, it would necessary to do some "date acquired" changes if selling in less than 1 year. In my case I have no plans to sell for several years, so may just leave date as is.

Again… thanks!

Tom Young

"Agree Quicken is not really a tax tool"

Even the best selling retail-level tax tool can't properly handle the situation of selling in less than a year and splitting the resulting gain between long term and short term. (At least it didn't when I was in the TurboTax community answering these sort of questions.) You always had to do some "outside the program" figuring and then split the sale into two parts.

"it would necessary to do some "date acquired" changes if selling in less than 1 year."

If you're referring to the potential issue of selling the stock with both long term and short term components I'd probably just call it all "long term" in Quicken and then do the proper reporting for taxes. I wouldn't sweat that "book-tax" difference as it's easily explainable if you ever had to (you probably have a better chance of being struck by lightning) and the really, really important thing is that your income tax reporting is correct.