NUA Qualification
I have a client who is 85 that in 1997 made a direct transfer of some of assets in his 401(K)to an IRA. He wished to transfer the entire 401(k) plan balance this year and have an employer security he holds distributed to him and qualify for NUA treatment. He also has some remaining funds in the 401(K)that would be directly transferred to an IRA.
Would the partial transfer he made in 1997 disqualify him for the NUA treatment?
Permalink Submitted by Alan - IRA critic on Fri, 2013-05-17 16:47
Yes, it would have disqualified him as an “intervening distribution”, ie a distribution made after the most recent triggering event unless he separated from service after the direct rollover. But he also should have been taking RMDs from the 401k unless he has been working all this time. RMDs are also intervening distributions, so he cannot use NUA now unless he has been working all this time and has not taken any distributions after separation from service.
Permalink Submitted by Peter Kneip on Fri, 2013-05-17 19:45
So, Is the only way practical to proceed with a NUA transaction is to move all of the investments via a direct rollover or NUA transaction after separation from service and before any distributions have been made?
Permalink Submitted by Alan - IRA critic on Fri, 2013-05-17 22:06
Yes, but age 59.5 can also be used as a new triggering event if employee separates prior to age 59.5. Once the last triggering event occurs, there can be no distributions until the year of the lump sum distribution (LSD) including the appreciated shares. So this client appears to not qualify unless he separated recently and did not take any RMDs in years after separation and before the LSD year.