7. Check the status of lump-sum distributions for the net unrealized appreciation tax break. The tax break for net unrealized appreciation (NUA) in employer securities can cut a client’s tax bill dramatically. This tax break is for clients who own their own company’s stock in their 401(k). If that stock is highly appreciated, it can qualify for the lump-sum distribution tax break on net unrealized gains. This will be triggered by some event—the employee leaves the company, reaches age 591/2, dies or becomes disabled—at which point all the company plan funds must be distributed in one year (any year after the year of the event). If you have a client that may qualify for this big tax break this year, check to make sure that all plan funds have actually been withdrawn before year’s end. Non-company stock funds can be rolled over tax free to an IRA and the company stock goes to a taxable account. Tax at ordinary income tax rates is paid on only the cost of the stock and the appreciation is not taxed at all until the stock is sold. When it is, the net unrealized appreciation is taxed at the lower long-term capital gain rates, regardless of how long the stock was held.
Finally, while you are doing your annual RMD checkup for clients, check their beneficiary forms for all of their retirement accounts, even those you are not currently managing. Beneficiary form problems are rampant and costly. Providing this kind of valuable service may plant the seed for clients to eventually move all of their accounts to you.
Ed Slott is a CPA and recognized retirement tax expert and the author of many retirement focused books. For more information on Ed Slott, Ed Slott’s 2-Day IRA Workshop and Ed Slott’s Elite IRA Advisor Group, please visit www.IRAhelp.com.