NUA Distribution at Principal Financial: Step-by-Step Process

Principal Financial Group administers 401(k) plans for thousands of small and midsize employers nationwide. If your employer stock is held through a Principal-administered plan, here's exactly how the NUA election works — how to find your cost basis, what to request when you call, where to receive the shares (a critical difference from Fidelity, Schwab, and Merrill), and what your 1099-R Box 6 must show. This is not investment or tax advice for your specific situation.

Principal Financial and the NUA process

Principal Financial Group (operating as "Principal") is one of the largest 401(k) retirement plan recordkeepers in the United States, primarily serving small and midsize employers — companies with roughly 10 to 5,000 employees. Participants access their accounts through the plan portal at principal.com. This platform handles contributions, investment selections, loans, and distributions, but requesting an in-kind employer stock transfer for NUA purposes is not a standard online workflow.

Like all major recordkeepers, Principal's default distribution path is a rollover to an IRA or a lump-sum cash payout. Requesting an in-kind stock transfer — where shares move to a taxable brokerage account without being liquidated — requires a specific phone call to Principal's participant distribution team. There is one critical difference you will not encounter at Fidelity, Schwab, Vanguard, Empower, or Merrill Lynch: Principal Financial does not operate a consumer retail brokerage. The firm is an insurance and asset management company, not a brokerage. This means you must establish a taxable brokerage account at a separate institution to receive the in-kind shares, and Principal must execute an external DTC transfer to deliver them.

Step 1 — Open a taxable brokerage account at an outside firm

Do this before calling Principal. Unlike custodians that have their own retail brokerage arm, Principal cannot receive the in-kind stock itself — it must send shares via an external transfer to a brokerage account you control. The account must be a taxable individual brokerage account, not an IRA of any type.

• Good choices: Schwab One Individual account, Fidelity Individual taxable account, TD Ameritrade (now Schwab), Vanguard Individual account, or any DTCC-connected brokerage that accepts DTC transfers of publicly traded securities.
• Open the account online — the process takes 10–15 minutes at most major brokers. Have the account number and the broker's DTC participant number ready before you call Principal.
• Do not use an IRA, rollover IRA, Roth IRA, or any other tax-advantaged account. If the employer stock lands in an IRA — even briefly — the NUA election is permanently destroyed for those shares. Specify clearly on every form that the receiving account is a taxable individual brokerage account.
• If your employer stock is in a closely-held company (not publicly traded), contact both Principal and the receiving broker in advance to confirm they can process the transfer. Closely-held shares may have transfer restrictions or may require a plan trustee to coordinate a redemption first. See the closely-held employer stock section below.

Step 2 — Find your employer stock cost basis in the Principal portal

The cost basis for NUA purposes is the plan's acquisition cost — the price the plan paid when shares were allocated to your account through employer contributions, profit-sharing, or ESOP allocations. This is not the current market price and not a standard brokerage "average cost" calculation. For an employee who has accumulated employer stock over 10 to 30 years of contributions, the plan cost basis is often very low relative to current value — exactly what makes NUA valuable.

• Log in to your plan account at principal.com. Navigate to your account summary or investment detail to locate the employer stock position.
• Look for a "cost basis" or "plan cost" figure. If one is shown, confirm it represents the plan's acquisition cost per share, not market value and not an estimated average. Principal's portal may not display lot-level cost basis in all plan configurations.
• If cost basis is not clearly shown, or if you are uncertain whether the displayed figure is accurate: call Principal's participant services line and ask specifically for the "plan cost basis per share of [company name] employer stock for NUA purposes under IRC § 402(e)(4)." Request the information in writing — a mailed or emailed statement confirming cost basis — before initiating any distribution.
• If your plan was previously administered by Wells Fargo Institutional Retirement and Trust before transitioning to Principal, see the note below regarding possible cost basis data gaps.

Step 3 — Call Principal's participant services line

In-kind distributions must be initiated by phone — not online — through Principal's participant contact center. The number is shown on your plan statement, in the plan portal under "Contact Us," or in your employer's benefits materials. There is no automated or self-service path for NUA distributions at Principal.

When you reach a participant services representative, use the following precise language:

• "I want to take a lump-sum distribution triggered by my separation from service [or age 59½ / disability / death of participant — whichever applies to your situation]."
• "I want to distribute the employer stock in-kind — shares transferred to my [broker name] individual brokerage account without being sold. The receiving account is a taxable brokerage account, not an IRA."
• "I want to roll the remaining non-stock plan balance over to an IRA."
• "I am electing Net Unrealized Appreciation treatment on the employer stock under IRC § 402(e)(4)."

Using precise language — "lump-sum distribution," "in-kind," "NUA," "IRC § 402(e)(4)," and specifying a taxable account — signals to Principal's distribution team that this is a non-standard transaction requiring specialist handling. If the representative seems unfamiliar with NUA, ask to speak with a "distribution specialist" or "complex distribution team" before proceeding.

Step 4 — Provide the external transfer instructions

Because Principal has no retail brokerage of its own, the in-kind stock transfer to your taxable account requires specific external transfer instructions. Have the following ready when you call:

• Receiving broker's DTC participant number — a 4-digit code that identifies the receiving brokerage at the Depository Trust Company clearing network. Schwab's DTC participant number is 0164; Fidelity's is 0226; Vanguard's is 0062. Other brokers can provide their DTC number through their account support team or the broker's website.
• Your account number at the receiving taxable brokerage.
• The company name and ticker symbol of the employer stock to be transferred, along with the number of shares.
• A statement confirming the receiving account is a taxable individual account, not an IRA or Roth account.

Principal will initiate the DTC transfer from your 401(k) plan's custodian bank to the receiving brokerage. Confirm the expected settlement timeline — typically 3 to 7 business days — and factor this into your December 31 year-end deadline planning.

Step 5 — Get the distribution instructions confirmed in writing

Before ending the call, ask Principal to confirm all distribution instructions in a written summary — mailed, emailed, or sent through the plan participant portal secure message system. This confirmation should specify:

• That the employer stock is being transferred in-kind (shares, not cash) to a taxable brokerage account via DTC transfer
• The receiving broker, DTC participant number, and your account number at that broker
• That the remaining plan balance is being rolled over to your IRA (specify the receiving IRA custodian and account number)
• The triggering qualifying event (separation from service / age 59½ / disability / etc.)
• The expected completion timeline for both legs of the distribution

Written confirmation protects you if either leg of the distribution is processed incorrectly — shares liquidated instead of transferred in-kind, employer stock included in the IRA rollover by error, or the December 31 same-year deadline missed. A paper trail gives you grounds to dispute a processing error before the tax year closes.

Step 6 — Complete both legs before December 31

The lump-sum distribution requirement means the entire plan balance must leave the plan within a single calendar year. Both legs must settle before December 31:

• The in-kind employer stock DTC transfer to your external taxable brokerage account
• The IRA rollover of remaining plan assets to your receiving IRA custodian

External DTC transfers through Principal typically take 3–7 business days to settle at the receiving broker. IRA rollovers to external custodians typically take 3–10 business days. If you are initiating in November or December, flag the December 31 same-year deadline explicitly with the Principal distribution representative and request confirmation that both legs will settle before year-end.

After initiating, verify completion on both ends: your Principal plan balance should reach $0, and shares should appear in your external taxable brokerage account. Do not assume the transfer processed correctly — check both accounts and follow up with both institutions if shares have not appeared within the expected window.

Step 7 — Review your 1099-R from Principal

Principal will issue a Form 1099-R in January of the year after the distribution. For an NUA election, the following boxes must be populated correctly:¹

If Box 6 is missing, or if Box 2a equals Box 1 (meaning the full market value is treated as ordinary income), Principal has processed the distribution without recognizing the NUA amount. Do not file your return with an incorrect 1099-R. Contact Principal's plan services team to request a corrected form — and if necessary, escalate through their formal tax document correction process.

Closely-held employer stock: a unique complication at Principal plans

Principal's client base skews toward small and midsize companies, and some of those employers are not publicly traded. If your employer stock is stock in a private company — shares that do not trade on a public exchange — the NUA mechanics involve additional complications not present in large public company plans:

• In-kind distribution may not be possible. The plan document must explicitly allow the distribution of closely-held shares in-kind to a taxable account. Many private company plans do not, and the employer stock must instead be redeemed (sold back to the company or ESOP trust) at fair market value. A redemption converts the gain to ordinary income and eliminates NUA treatment. Confirm with Principal whether your specific plan document allows in-kind distribution of privately-held shares before planning on an NUA election.
• Valuation timing. Private company shares are valued annually (often by a third-party appraiser), not on a daily basis like public stock. The "fair market value at distribution" on your 1099-R reflects the most recent annual appraisal, not a live market price. This can create valuation disputes and must be confirmed with Principal's plan administrator before initiating.
• Transfer restrictions. Closely-held stock often carries shareholder agreement transfer restrictions or right-of-first-refusal provisions. These restrictions may make external DTC transfer to a retail brokerage impractical or legally complicated. An NUA specialist advisor and a plan attorney should review the plan documents and shareholder agreement before you initiate any distribution in this situation.
• ESOP put option. If the stock is in an ESOP with closely-held shares, the plan may have a "put option" under IRC § 409(h) — the participant's right to require the employer to repurchase the stock at appraised value within a specified window after distribution. A put option exercise is a sale, which triggers the NUA LTCG. It does not disqualify NUA but must be planned in advance. See the NUA ESOP guide for details.

Common Principal-specific pitfalls

Assuming shares can land at Principal — they can't

This is the most common mistake made by participants in Principal plans who have read guides written for Fidelity or Schwab. At those custodians, you open an account at the same institution that holds your 401(k) and shares move internally. At Principal, there is no consumer brokerage account to open. If you call Principal and ask them to "transfer the shares to a Principal brokerage account," there is no such product. Confirm in advance where the shares are going, open that external taxable account, and have the DTC details ready.

Wells Fargo migration: incomplete or estimated cost basis

Participants whose plans migrated from Wells Fargo Institutional Retirement & Trust to Principal (2019–2020 transition) may find that lot-level cost basis records were not fully preserved at the per-share level for contributions made prior to the migration. If your employer stock was accumulated over many years and your plan was on Wells Fargo before the transition, do not assume the cost basis shown in Principal's portal is complete and accurate. Request written, lot-level documentation from Principal and reconcile it against any contribution history records you have from Wells Fargo plan statements. An understated basis reduces your NUA benefit; an overstated basis understates your distribution-year tax bill.

External DTC transfer settlement delay causes missed December 31 deadline

Because shares must travel through the DTC network to an outside firm, the transfer takes longer than an internal Schwab-to-Schwab or Fidelity-to-Fidelity move. A 3–7 business day settlement window in late December can easily push the in-kind transfer into January if initiated too late. If the stock arrives in your taxable account in January of the following year, the lump-sum distribution spans two calendar years — a technical disqualification of the NUA election. If you are executing in Q4, initiate in early November at the latest to leave adequate buffer.

Employer stock accidentally liquidated on distribution initiation

Like other recordkeepers, Principal's default distribution workflow may trigger automatic liquidation of plan holdings to cash. If a representative processes your distribution request as a standard cash distribution or IRA rollover without correctly flagging the in-kind transfer requirement, the employer stock will be sold and the NUA opportunity permanently forfeited. Before the request is finalized, confirm explicitly that the employer stock is being transferred as shares, not cash. Follow up by checking the receiving brokerage account within 5–7 business days to confirm shares — not a cash wire — arrived.

Employer stock included in the IRA rollover leg

When Principal processes the IRA rollover of your remaining non-stock plan balance, there is a risk that employer stock is accidentally included in the rollover — particularly if the distribution instructions are not precisely specified or if the plan's recordkeeping system defaults to a blanket "rollover all" instruction. If any employer stock ends up inside an IRA, the NUA on those shares is permanently forfeited.² After settlement, verify that your external taxable account received shares and that no employer stock appears in the IRA rollover statement.

Closely-held employer stock without an in-kind distribution option in the plan document

Principal serves many plans where the employer stock is in a private company. If the plan document does not explicitly permit in-kind distribution of privately-held shares, a participant who assumes NUA is available may initiate a distribution expecting in-kind transfer and instead receive cash from a mandatory redemption. Confirm the plan document's in-kind distribution provision in writing from Principal before building an NUA strategy around private company stock.

After the transfer: next steps

Once the employer stock appears as shares in your external taxable brokerage account:

• The NUA amount automatically qualifies as long-term capital gains when sold, regardless of how long you hold the shares. Post-distribution appreciation above the NUA amount will be short-term if you sell within one year of the distribution date; long-term after one year. Most situations favor holding at least one year to convert post-distribution gains to long-term rates as well.
• Review your post-NUA diversification strategy — tranche selling, charitable donations, 0% LTCG bracket harvesting, and holding for estate step-up are all worth modeling before selling.
• The 1099-R Box 6 amount is reported on Schedule D as a deemed long-term capital gain in the year of sale, not the year of distribution. Most tax software handles this correctly if you enter the 1099-R data accurately. See the NUA tax reporting guide for the mechanics. An NUA-specialist tax advisor should review the return for both the distribution year and the first sale year.
• Cross-links to sibling custodian guides: Fidelity · Empower · Vanguard · Schwab · Merrill Lynch.