By Andy Ives, CFP®, AIF®
Your advice, articles, publications and books I’ve purchased over the years have been great and most informative. Great job! My question is with regards to NUA – I retired recently (age 66) and had a company 401(k) to which I contributed over the years and will likely not make any withdrawals until required RMD’s. Within the company 401(k) plan I invested in selected bond funds, stock funds, small cap, a value fund, target funds, mid cap funds, international funds and our company stock fund option. (Some of the company stock I purchased and some was a company gift over the years). My company stock fund has become highly appreciated and I am familiar with all the NUA requirements. Although I have made no 401k withdrawals, I have moved money within the plan from my company stock fund to the other plan fund options listed above because the company stock fund was considered too aggressive of an investment by independent advisors.
Question: The moving of some of my company stock money to other 401k plan options – does that restrict any NUA future considerations on the remaining money I have in my compony stock?
Thank you for the compliments! We are pleased to hear that our work is helpful. As for the remaining dollars in your company stock fund, shifting assets out of that particular investment option will not restrict your eligibility for leveraging the NUA rules nor will it affect your cost basis on what remains in the fund. The money moved into the other investment options will not be available for NUA consideration. As you reallocate, if you moved money back into the company stock fund, it would again be eligible for NUA consideration, but BE CAREFUL. Moving money back into the stock fund could considerably alter your cost basis and adversely affect the overall appreciation and NUA benefit.
If I am receiving earned income, though not working, can I contribute to a Roth IRA? My pension returns tax-free income to me from my contributions to an employee funded pension during my working years. In my opinion, this is earned income being returned to me. If this does qualify me to continue to fund my Roth, then are there dollar limits for my wife and I?
Unfortunately, pension income does not qualify as earned income for Roth IRA contributions. Other examples of items that do not qualify are Social Security payments, interest and dividend income, unemployment benefits as well as alimony and child support. A person must have earned income, even if they only work part-time, to contribute to a Roth IRA. A couple’s contribution limits to a Roth IRA is limited to the lesser of the total eligible compensation or $6,000 each, plus $1,000 catch-up if over age 50.