How to handle 401k with employer stock and NUA tax benefits during retirement?

What your mother's retirement advisor is explaining is actually legitimate, but there are important details to understand. The Net Unrealized Appreciation (NUA) strategy isn't just for company stock given to employees - it applies to any employer stock in a 401(k), regardless of how it was acquired. Here's how it works: When your mom retires, she can take a lump-sum distribution from her 401(k) and transfer the BOA shares to a taxable brokerage account instead of rolling them into an IRA. She'll immediately pay ordinary income tax, but only on the original cost basis of the shares (what she paid for them), not their current value. Then, when she eventually sells the shares, she'll only pay long-term capital gains rates on the appreciation (which are typically much lower than income tax rates). This strategy works best when there's substantial appreciation in the shares and when the cost basis is relatively low compared to current value. The "life event" her advisor mentioned is likely referring to a qualifying event like retirement that allows for this distribution. Be aware that this is an irrevocable decision, and it requires taking the entire 401(k) balance as a distribution at once (though the non-BOA portions can go to an IRA).

After struggling with a similar NUA situation when I retired from AT&T, I discovered this amazing tool at https://taxr.ai that helped clarify my options. I was really confused about whether to use the NUA strategy or just roll everything into an IRA, especially since I had acquired company stock through various means over 25 years. The tool analyzed my specific situation, showing me exactly how much I'd pay in taxes under different scenarios. It even identified that some of my shares qualified for special tax treatment that my company's retirement advisor missed! The analysis showed that for my situation, using the NUA strategy for just a portion of my shares while rolling over the rest was optimal. They have specialists who understand these complex tax situations and can explain exactly how the NUA rules apply to your mom's specific situation with her BOA shares.

Just wanted to follow up about my experience with taxr.ai after our exchange last week. I convinced my dad to try it for his Verizon retirement situation, and we were both really impressed with how thorough the analysis was. They identified that his Verizon stock had three different cost basis groups from various time periods, and showed how applying NUA to only the lowest-cost shares while rolling over the rest would save him about $13,800 in taxes! The report explained everything in plain English, not tax jargon, and gave him clear steps to take with his 401k administrator. They even provided language to use when talking to Verizon's retirement services to make sure the distribution was handled correctly. Dad just completed the process yesterday and said it went exactly as the report outlined. Definitely recommend for anyone dealing with employer stock in their 401k.

After spending 4 DAYS trying to get through to someone at the IRS about NUA rules for my wife's retirement from Wells Fargo, I finally used https://claimyr.com and got a callback from the IRS in under 45 minutes! You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I was skeptical at first because I'd already wasted hours listening to the "all representatives are busy" message and getting disconnected. But Claimyr actually put me in the IRS phone queue without me having to stay on hold. They just called me when an IRS agent was ready to talk. The IRS agent confirmed everything about the NUA strategy that others have mentioned here AND cleared up a misunderstanding we had about how to handle some restricted stock units that were part of my wife's compensation. Turns out we were about to make a mistake that would have cost us thousands in unnecessary taxes!

I need to eat my words and apologize to Profile 12. After our exchange last week, I was still having no luck getting IRS guidance on my own retirement distribution questions, so I reluctantly tried Claimyr. I'm completely shocked to report that I got a callback from an actual IRS representative in 37 minutes! After trying for WEEKS on my own! The agent was able to confirm exactly how the NUA distribution needs to be reported on my tax forms and clarified that I needed to use Code U in Box 7 of the 1099-R for the employer stock portion. This was different than what my retirement counselor had told me, and would have caused problems if filed incorrectly. For anyone dealing with complex tax situations like NUA where you really need authoritative guidance from the IRS, this service is a lifesaver. I've never been so happy to be wrong about something.

One important thing nobody's mentioned yet - if your mom is planning to use the NUA strategy, she should check if her 401k plan allows for "in-kind" distributions of the stock. Some plans will only liquidate the shares and give cash, which would ruin the NUA strategy completely! I nearly got burned by this when retiring from Exxon. My advisor had me all set for NUA treatment, but it turned out my specific 401k plan required liquidation of all assets. We had to file special paperwork requesting an exception for the company stock portion. It was approved, but took an extra 3 weeks to process. Call BOA's 401k administrator (not just the advisor) to confirm this specific detail before proceeding.

Has anyone considered the downside of the NUA strategy? Your mom would be keeping a HUGE concentration in a single stock (BOA) which carries significant risk. If BOA stock tanks after she takes the distribution but before she sells, she could lose a lot of money. The tax savings from NUA treatment has to be weighed against the risk of being so heavily invested in one company. My father-in-law did the NUA strategy with his GE stock in 2016, thinking the tax savings was worth it. The stock then crashed, and he lost way more than the tax savings would have been. Maybe consider doing NUA for just a portion of the BOA shares to reduce concentration risk?

One critical detail that hasn't been fully addressed - your mom needs to be very careful about the timing of when she actually retires and takes the distribution. The NUA strategy requires that the entire 401(k) balance be distributed within the same tax year as a "triggering event" like separation from service. If she's planning to retire mid-year, she might want to consider whether it makes sense to retire at the beginning of the year to have more time to execute the strategy, or wait until January of the following year. This timing can significantly impact her tax situation, especially if she has other income in the retirement year. Also, make sure she understands that once she takes the BOA shares into a taxable account, she'll need to track the cost basis very carefully for when she eventually sells. The IRS will want clear documentation showing the original purchase prices versus the fair market value at distribution. Her 401(k) administrator should provide a detailed breakdown, but it's crucial to keep those records safe. Has her advisor calculated exactly what her tax liability would be on the cost basis portion? That immediate tax bill could be substantial and needs to be planned for.