Employer Securities as part of in-plan Roth Rollovers

I understand that an in-plan rollover to a designated Roth account of employer securities is treated as a distribution for the net unrealized appreciation (NUA). What are the implciations of that treatment? 

I would talk to a CPA who is familiar with the issue.

My limited understanding since it's not my area of expertise is to take advantage of the NUA rules the shares need to leave the qualified Plan via distributable event into a taxable account of the individual in which case (again my understanding) is you are only taxed on the basis that is transferred and when you later sell the stock would pay the long term capital gains on the appreciation at the time of the sale.

See IRS Notice 2013-74:

"Q-9. Is an in-plan Roth rollover treated as a distribution for purposes of
determining eligibility for the special tax rules on net unrealized appreciation
(“NUA”) in employer securities paid in the form of a lump sum distribution under
§ 402(e)(4)(B)?
A-9. Yes. An in-plan Roth rollover is treated as a distribution for purposes
of determining eligibility for the special tax rules on NUA, whether the rollover is
made by an in-plan Roth direct rollover or by an in-plan Roth 60-day rollover.
See also Q&A-7 of Notice 2010-84."

This goes to determining the amount that is taxable related to the conversion and the basis in the Roth account.  If circumstances are such that a distribution in employer securities is made from the Roth account before the account has aged 5 years, then the basis will factor into taxation of the NUA on the securities at the time of distribution.  This will be very complicated if there are other assets distributed concurrently with the stock, or if there have been multiple in-plan Roth rollovers involving employer securities.  These transactions have their own pro-ration rules between the ordinary income on the other assets and the NUA related to the employer securities.  Definitely seek knowledgeable, professional expertise for those calculations.

I understand that an in-plan rollover to a designated Roth account of employer securities is treated as a distribution for the net unrealized appreciation (NUA). What are the implciations of that treatment? 

I think it goes to determining at a later date whether a distribution is eligible for NUA treatment. In order to be eligible for NUA rules, a participant must take a lump sum distribution on or after a "triggering event", typically age 59 1/2 if the plan allows withdrawals at that time, or severance of employment. A lump sum distribution for this purpose is defined as a distribution of all of the participant's benefit under the plan in a single tax year. So if a participant does an in-plan Roth rollover upon attaining age 59 1/2, the in-plan Roth rollover counts as a distribution for NUA eligibility. If the participant in a later tax year takes a distribution from the plan of their entire balance, the earlier in-plan Roth conversion counts as a distribution and thus the full account distribution isn't a "lump sum" distribution. If the participant waits until a new "triggering event", such as severance of employment, then a full distribution could meet the requirement of a "lump sum" distribution.

Notice 2010-84 Q&A 7 specifically states that NUA is included in the taxable amount of an in-plan Roth rollover. So there is no ability to get NUA treatment of an in-plan Roth rollover and basis would be the market value of the stock, less any after-tax basis.

"Q-7. What are the tax consequences of an in-plan Roth rollover?

A-7. The taxable amount of the in-plan Roth rollover must be included in the participant’s gross income. The taxable amount of an in-plan Roth rollover is the amount that would be includible in a participant’s gross income if the rollover were made to a Roth IRA. This amount is equal to the fair market value of the distribution reduced by any basis the participant has in the distribution. (See Notice 2009-75, 2009-35 I.R.B. 436.) Thus, if the distribution includes employer securities attributable to employee contributions, the fair market value includes any net unrealized appreciation within the meaning of § 402(e)(4). If an outstanding loan is rolled over in an in-plan Roth rollover, the amount includible in gross income is the balance of the loan."

Notice 2010-84 Q&A 7 was modified by Notice 2013-74 Q&A 9.