NUA RMD

Submitted by Eric Johannes on Wed, 2013-09-25 02:28

My Client is 70 1/2 this month and wants to use the NUA method for distribution on his 401K. Does the NUA distribution count toward this year’s RMD?



Submitted by Alan - IRA critic on Wed, 2013-09-25 18:29

Yes, the value of the cost basis and the NUA counts toward a current year RMD. Note that he must complete the LSD by 12/31 in order to use NUA unless he wants to defer his first RMD until next year. An RMD in a year prior to the LSD will be an intervening distribution and eliminate NUA possibilities.

Submitted by Eric Johannes on Wed, 2013-09-25 19:39

Can the RMD only satisfy the 401K or can it be used to satisfy his other established IRA’s as well?

Submitted by Alan - IRA critic on Wed, 2013-09-25 20:09

401k and IRA RMDs must each be satisfied separately.

Submitted by David T on Tue, 2016-07-19 21:07

You state that “Yes, the value of the cost basis and the NUA counts toward a current year RMD. ”  But if the cost basis equals to the after-tax money in 401K, then there is no tax due.  Does it still count towards current year RMD? RMD with no tax consequences?

Submitted by Alan - IRA critic on Wed, 2016-07-20 00:02

Yes, whether tax is due or not is immaterial. The following IRS Reg 1.401(a)(9)-5, Q 9 is very clear on this point:

Q-9. Which amounts distributed from an individual account are taken into account in determining whether section 401(a)(9) is satisfied and which amounts are not taken into account in determining whether section 401(a)(9) is satisfied?A-9. (a) General rule. Except as provided in paragraph (b), all amounts distributed from an individual account are distributions that are taken into account in determining whether section 401(a)(9) is satisfied, regardless of whether the amount is includible in income. Thus, for example, amounts that are excluded from income as recovery of investment in the contract under section 72 are taken into account for purposes of determining whether section 401(a)(9) is satisfied for a distribution calendar year. Similarly, amounts excluded from income as net unrealized appreciation on employer securities also are amounts distributed for purposes of determining if section 401(a)(9) is satisfied.

Submitted by [email protected] on Wed, 2016-07-20 13:52

taking the 1st year RMD just prior to RBD, April 1 of the following year, would count against the first two year’s RMDs, correct?  Of course, assuming the qualifications of a LSD are met.

Submitted by Alan - IRA critic on Wed, 2016-07-20 18:50

Yes, if the first year RMD is deferred to the second year, no intervening distribution has been taken and that allows the LSD to be taken in the second year no later than 4/1. The NUA share value may be enough to satisfy both the first and second year RMDs thus avoiding taking any additional taxable distributions for those two years.

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