NUA for spouse after 70 1/2
Trying to obtain more information regarding NUA for a new client. Husband passed in 2011 with dollars in CAT stock in 401(k). The spouse was named as beneficiary and she has kept assets at 401(k). She is over 70 1/2 and has taken RMD’s.
1. Is she eligible for NUA?
2. If I call 401(k) provider, will they know basis? If not, how do I get basis?
3. Given she has taken a few years of RMD’s , is the cost basis now adjusted for these RMD’s?
Thanks in advance for your help.
Permalink Submitted by Alan - IRA critic on Thu, 2016-01-07 21:58
She can no longer qualify for NUA because her RMDs are considered to be “intervening distributions”. There can be no distributions between the year of the triggering event and the year of the LSD. The triggering event here was the death of the participant. The intervening distribution would be the first RMD the wife took out that was in a year prior to the LSD year. The intervening distribution was probably her RMD in 2012. At this point, the wife should consider diversifying out of the CAT stock, or at least reduce the amount of CAT stock to a minor portion of her total retirement assets. She should also consider an IRA rollover to both reduce her RMDs and so her own beneficiary can get a life expectancy stretch when she passes.
Permalink Submitted by Robert Witt on Tue, 2016-01-12 19:12
Can you clarify why her RMD’s would by reduced by rolling to an IRA?
Permalink Submitted by Alan - IRA critic on Tue, 2016-01-12 19:50
A surviving spouse cannot become the owner of a 401k plan and their RMDs are based on the single life table. But with an IRA rollover they can own the IRA and use the Uniform Table for IRA RMDs. The Uniform Table produces much lower RMDs and also builds in a joint life expectancy with an assumed beneficiary 10 years younger. If an IRA rollover is done, the lower IRA RMDs do not start until the following year.