RMDs and NUA

Submitted by Warren DeNardo on Mon, 2015-10-12 21:57

Client separated from service in 2008.

No intervening distributions.
Becomes 70.5 in 2017.
100k cost on 500k stock value———IRA valued at 2 Million.

Client is essentially looking to preserve NUA….

If he took his RMD in 2016, it seems the NUA covers the RMD.
If he takes his RMD in 2017(two actually) it would seem again the RMD is covered by the NUA distribution.

Client seems to want to keep NUA in perpetuity, at a time and place of his choosing…..

In the two above examples, he seems to be on terra firma.

Is there an area of the tax code where this is spelled out, or or there any PLRs that may address this?

Thank you very much.
Warren



Submitted by Alan - IRA critic on Mon, 2015-10-12 22:38

  • Warren, I think one of your years is off. There is no 2016 RMDs based on his age. In any event it appears your question is whether deferring the first RMD to the RBD year and therefore taking two RMDs in that year could result in the stock value (cost basis plus NUA) satisfying both RMDs. The answer is yes. The LSD required to utilize NUA can therefore be done in the RBD year. This is also the last year it could be done since taking an RMD from the plan before the LSD year would create an intervening distribution. Further, if there is any after tax contributions in the plan, that amount could be used to offset some of the taxable cost basis of the employer stock.
  • I am not aware of any IRS guidance that specifically addresses this, but there are no known issues with the rules. The IRS has specifically stated in the RMD regs that non taxable amounts satisfy RMDs. All the IRS will look for here is a 1099R that shows a Box 6 NUA amount and taxable amount in Box 2a. Any after tax contributions assigned by plan accounting to the share distribution will appear in Box 5. There will be a separate G coded 1099R for the direct rollover of the rest of the plan balance to an IRA. It is possible that a plan has specific provisions for assigning after tax contributions between the stock and the rest of the plan. But if there is significant after tax contributions in the plan, it sets up a trade off involving a Roth rollover and where the after tax amount goes on the two 1099R forms.
  • Remember that all plans of the same type must be fully distributed in the LSD year. That could include ESOPs or certain other profit sharing plans.
  • I would seek verification of the 1099R amounts at the time of the LSD request. If there is any advantage to taking more than one distribution in the LSD year, they still count as an LSD as long as the plans are emptied by year end.


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