In Service Distribution before any trigger event impact on NUA
Help. The large broker that hold my company 401k is unable to answer this question. I turn 59.5 this year and will also retire. 2 years ago it was suggested by this firm that I consider an In Service Distribution to both an IRA and Roth IRA. I now want to take advantage of the NUA on a LSD after I retire. I have been told this is a cloudy area and they are not sure, but think I can not. My independent research is less than 100% clear, but to me an In Service Distribution prior to a triggering event for a LSD does not elminate my option to exercise a NUA. Can anyone comment please. Thanks in advance.
Permalink Submitted by Alan - IRA critic on Fri, 2013-05-24 01:57
Separation from service is a triggering event for NUA purposes. So is reaching 59.5, but you cannot complete a lump sum distribution prior to 59.5 while still working because your employee deferrals cannot be distributed prior to 59.5. In your case, both triggering events will occur about the same time. A new triggering event erases the affect of any prior distributions from the plan. After you retire, the only thing that would derail your qualified LSD would be taking a distribution AFTER your last triggering event (either 59.5 or separation) in a year before your LSD year. Therefore, you are correct that any prior in service distribution does not compromise your LSD once you have a new triggering event.