Unitized ESOP Fund in Company 401k Eligible for NUA?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
aciaitf
Posts: 2
Joined: Mon Aug 14, 2017 3:11 pm

Unitized ESOP Fund in Company 401k Eligible for NUA?

Post by aciaitf » Mon Aug 14, 2017 3:21 pm

Hi,

My company matches my 401k contribution through Unitized ESOP Company Stock Fund. I have no way of changing this option.

Currently, 9-10% of my 401k portfolio is in this Unitized ESOP Company Stock Fund.

My question is:
Further down the road, should I decide to liquidate the Unitized ESOP Company Stock Fund or even rebalance asset mix -

Will this fund be eligible for Net unrealized appreciation tax strategy just like regular company stocks held in a 401k plan?


Thank you very much.

User avatar
LadyGeek
Site Admin
Posts: 41108
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Unitized ESOP Fund in Company 401k Eligible for NUA?

Post by LadyGeek » Mon Aug 14, 2017 3:42 pm

Welcome! My former MegaEmployer matched my 401(k) contributions with company stock.

Did you realize that you can buy / sell shares within a 401(k) without tax penalties? (That's true for any tax-deferred retirement account.)

Since my approach is to never hold individual stocks, I simply transferred those shares to the other funds in my 401(k) in the same percentages I held in the portfolio.

For example, if my 401(k) consisted of a 50% Total Market Stock fund and a 50% Total Bond fund, I'd sell the company stock so that 50% went to Total Market Stock and 50% to the Total Bond fund.

I did this every few weeks to keep the company stock as close to 0 as possible.
To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

BigJohn
Posts: 1397
Joined: Wed Apr 02, 2014 11:27 pm

Re: Unitized ESOP Fund in Company 401k Eligible for NUA?

Post by BigJohn » Mon Aug 14, 2017 5:28 pm

Here are the requirements for using NUA from this source https://www.fidelity.com/viewpoints/per ... pany-stock
You must meet all four of the following criteria to take advantage of the NUA rules:

1) You must distribute your entire vested balance in your plan within one tax year (though you don’t have to take all distributions at the same time).
2) You must distribute all assets from all qualified plans you hold with the employer, even if only one holds company stock.
3) You must take the distribution of company stock as actual shares. You may not convert them to cash before the distribution.
4) You must have experienced one of the following:
+ Separation from service from the company whose plan holds the stock (except in the case of self-employed workers)
+ Reached age 59½
+ Total disability (for self-employed workers only)
+ Death
As you can see, this is not really a rebalancing tactic but rather one you may be able to use when you take a total distribution of your 401(k). Beyond that, this does not exactly answer your question about the fund so the first thing I'd ask is, can that fund be withdrawn as shares? I'm guessing no, in which case it could not be used for NUA. If yes, then you will need to research further. Maybe one of your coworkers has already answered this?

User avatar
LadyGeek
Site Admin
Posts: 41108
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Unitized ESOP Fund in Company 401k Eligible for NUA?

Post by LadyGeek » Mon Aug 14, 2017 5:40 pm

Thanks! I added that article to the wiki: Net unrealized appreciation
To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

Alan S.
Posts: 6914
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Unitized ESOP Fund in Company 401k Eligible for NUA?

Post by Alan S. » Mon Aug 14, 2017 11:51 pm

aciaitf wrote:
Mon Aug 14, 2017 3:21 pm
Hi,

My company matches my 401k contribution through Unitized ESOP Company Stock Fund. I have no way of changing this option.

Currently, 9-10% of my 401k portfolio is in this Unitized ESOP Company Stock Fund.

My question is:
Further down the road, should I decide to liquidate the Unitized ESOP Company Stock Fund or even rebalance asset mix -

Will this fund be eligible for Net unrealized appreciation tax strategy just like regular company stocks held in a 401k plan?


Thank you very much.
I don't think your basic question has been answered.
The following is a copy of my response to this question 10 years ago on a different forum. It still applies.
Submitted by alan-oniras@yah... on Wed, 2007-08-01 14:40
Yes, these unitized company stock funds generally qualify for NUA treatment, but of course actual share certificates of an equivalent number of shares will have to be distributed as part of the LSD. These funds typically incorporate dividend reinvestment, and each quarterly dividend reinvested contributes to the average cost basis per share which is currently taxable in the year of the LSD. ESOP share dividends however may be paid in cash and not reinvested.

aciaitf
Posts: 2
Joined: Mon Aug 14, 2017 3:11 pm

Re: Unitized ESOP Fund in Company 401k Eligible for NUA?

Post by aciaitf » Wed Aug 16, 2017 1:59 pm

Thanks to everyone who responded to my questions. I appreciate it. I will indeed do more research on this topic.

I am leery of owning company shares in unitized ESOP fund or actual stocks. I am no way near the retirement age, and don't foresee withdrawing any money out of my 401k plan. I don't contribute any personal fund to company-related stocks or funds.

Since I don't have option of choosing a more diversified investment when it comes to company matching, the balance is really not large atm. I think the best approach is to transition out of the ESOP fund and rebalance the asset mix.

User avatar
LadyGeek
Site Admin
Posts: 41108
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Unitized ESOP Fund in Company 401k Eligible for NUA?

Post by LadyGeek » Wed Aug 16, 2017 3:26 pm

^^^ That's what I did on a continual basis. Stick to your plan (move out of ESOP into percentage of funds owned) and ignore what happens to the price. Don't let the emotion of price changes affect your approach.

It's what we call Stay the course, you'll be much better off.
To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

Post Reply