Where do I report closing 401K and moving stock o a non qualified brokerage account to take an NUA (net unrealized appreciation?

[dmertz]

You'll enter the Form 1099-R reporting this distribution.  Enter the Form 1099-R under Wages & Income -> Retirement Plans and Social Security -> IRA, 401(k), Pension Plan Withdrawals (1099-R).

The Form 1099-R will have the gross distribution in box 1, the taxable amount in box 2a, tax withholding in box 4, any after-tax basis included in the distribution in box 6, the NUA amount in box 6, and code 1, 2 or 7 in box 7 (depending on your age at distribution and your age at separation from service).  The taxable amount in box 2a will be the amount in box 1 minus the amounts in boxes 5 and 6 (but not less than zero).

Be sure to keep track of the NUA amount and the basis in the NUA shares for use when you eventually sell the shares since the brokerage might not retain that information.

[dpgayk]

Later TurboTax asks if, out of the Gross distribution, what was reinvested into a qualified retirement account.  I entered the about in box 6 and it returns that there is no tax due although there is a substantial amount in box 2a, Taxable amount.  Is TurboTax computing this incorrectly?

[dmertz]

Things get messy when you end up rolling over a distribution that was reported as an NUA distribution because the amount in box 2a does not reflect the actual taxable amount of the distribution and TurboTax doesn't have a good way to determine the true taxable amount.  If the entire distribution is rolled over the taxable amount would be the gross distribution minus the amount in box 4.  You would have to enter the Form 1099-R as if no NUA had been distributed and provide explanation with your tax return as to why the reporting differs from what is reported on your tax return.  You could do this by entering a substitute Form 1099-R (Form 4852) so that TurboTax prompts you for the explanation or you could just prepare the explanation statement outside of TurboTax.   Either way you would need to mail your tax return under these circumstances.