NUA Transaction
I have a question pertaining to NUA. I am currently 70yrs old. I seperated from employment in 2010. And left my 401k with my employer. I had invested in the company stock for approx 12 years through my 401k and it made up 100% of my account. In Sept of 2011 or 2012 there was a corporate action in which my employer spun off a division of the company and it formed a new publicly traded company. After the spin-off I was contacted by the 401k plan administrator and I was instructed that I had to either, 1. sell the shares of the newly formed company, or 2. move the shares of the newly formed company to an IRA account. I chose the latter, and moved them to my IRA. Now, my question is since this was a forced transaction (by the plan administrator) can I still proceed with a NUA transaction?
Permalink Submitted by Alan - IRA critic on Tue, 2015-06-16 21:32
I think you are referring to the intervening distribution rules that nullify any qualifying LSD. Unfortuneately, I am not aware of any exception for a forced intervening distribution that allows the LSD to still take place. This includes not only the shares that are now in the IRA (IRA rollover removes the NUA option for the shares rolled over) OR the company shares remaining in the plan that have now been negatively affected by the forced intervening distribution. Of course, this is the last possible year for NUA anyway because of impending RMDs from the plan that will be distributed. You can always ask the plan administrator if in the event of a distribution of the shares to a taxable account, will they show an NUA amount in Box 6. If they show NUA, the IRS is not likely to contest it, perhaps they are aware of an exception that I am not aware of. There is very little information on intervening distributions available, as is generally the case on many aspects of NUA LSDs.
Permalink Submitted by David Martinez on Wed, 2015-06-17 16:27
HI Alan. I spoke with the plan administrator last week regarding NUA. They informed me that I wasn’t eligible due to the fact that I removed the spin-off shares form the account. I asked them to escalate the matter because they forced me to rollover the shares to my IRA. To my surprise they just called me this morning and notified me that they will honor the original cost basis and allow me to proceed with the NUA since they forced me to remove the shares from the 401k.
Permalink Submitted by Alan - IRA critic on Wed, 2015-06-17 21:40
Well, it was worth asking, and the IRS is not likely to dispute your use of NUA when your 1099R shows a Box 6 amount. I wonder if this person is making an arbitrary decision or if they have some citation they believe allows this exception. But it is vital that they do not renege on this indication because once you have the taxable distribution and 60 days has passed when you get a 1099R that does not include the NUA, the result is sort of a disaster as you are stuck with a taxable distribution and all will be taxed at ordinary income rates. Therefore, you should get further confirmation and even condition your distribution request that your NUA be reported on the 1099R as indicated.