RMD with NUA in Retirement Plan
I have a client who is 75 years old who just inherited his daughter’s 401k
The plan has employer securities with substanitial NUA. The administrator is telling us that before we can roll over the pretax portion and place the employer securities in a brokerage account [since we will pay tax on the cost basis], the RMD must be made. The problem is that the administrator is including the NUA in determining the RMD.
Is this correct? I thought we could roll over the pre-tax portion, then take the RMD on a lesser value.
AD
Permalink Submitted by Alan Spross on Fri, 2007-11-02 23:22
IF there IS an RMD required, the entire plan balance is used in the calculation, and that includes the NUA. But the NUA and the cost basis count toward satisfying the RMD, and therefore the distribution to the taxable account should be done first. The RMD would then be satisfied and the rest of the assets could be transferred to a non spouse inherited IRA to complete the LSD. Note that the entire process must be completed prior to year end and therefore there is some urgency starting the process this late in the year.
But, back tracking for a moment, why would there even be an RMD if she just died? Or did she die in 2006?