Is NUA using only after tax funds counted towards RMD?
I am planning to do 401K LSD. My after tax balance in 401K exceeds the first year RMD. If I use NUA only to the extent of my after tax money in 401K and obviously pay no income taxes on it… would it count as my first year RMD?
Permalink Submitted by Alan - IRA critic on Thu, 2016-07-21 18:37
Yes. The following IRS Reg 1.401(a)(9)-5, Q 9 is very clear on this point:
Note that basis from your after tax contributions may or may not be applied to the employer shares by the plan provisions. If applied, they would be applied only to the cost basis, not to the NUA per share. You might have a high enough amount to eliminate the taxable cost basis, but would still have the NUA per share to be taxed later when you sell the shares. Some people would rather have the after tax contributions isolated per Notice 2014-54 and directly rolled to a Roth IRA, but pay tax on the NUA cost basis. Having the after tax balance converted to a Roth IRA tax free is a one time opportunity when direct rollovers are done, so you have a decision to make once you determine your options under the plan. Having after tax contributions along with highly appreciated employer shares in the plan presents a complex planning opportunity.