NUA
If a clients has a pension and 401k at his former employer, does he have to rollover both in order to use the NUA strategy?
If a clients has a pension and 401k at his former employer, does he have to rollover both in order to use the NUA strategy?
Permalink Submitted by Alan - IRA critic on Mon, 2016-10-17 19:53
A qualified lump sum distribution (LSD) requires that “all qualified plans of one kind” be distributed. A DB plan is NOT considered to be the same kind as a 401k profit sharing plan or stock bonus plan. A 401k and an ESOP are considered to be of one kind. He could therefore leave the DB plan in place and still have a qualified LSD for NUA purposes if the DB plan is a typical pension plan. This should also be true of the newer hybrid plans that allow lump sum distributions as an option to a life annuity. However, to be safe this question should be directed to the plan administrator to be sure they agree that leaving the pension in place will not void NUA treatment. The plan must show NUA in Box 6 of the 1099R and if they do not, then the employee might not find out until it is too late to complete a 60 day rollover of the shares.
Permalink Submitted by Rick Tenison on Wed, 2016-10-19 15:25
Fidelity sent him the shares made payable to his IRA. Do they need to be sent back to Fidelity to title them in his name or can they be transferred to a non qualified account?
Permalink Submitted by Alan - IRA critic on Wed, 2016-10-19 16:55
If the shares are rolled into his IRA, NUA is forfeited. Unless Fidelity made an error, it will probably be difficult to get them to re do the distribution.
Permalink Submitted by Rick Tenison on Mon, 2016-11-21 20:33
Fidelity told us they made the shares payable to his IRA but he hasn’t received the certificates and it’s been more than 60 days. Can we have them issue the certificates to him when they redo them?
Permalink Submitted by Alan - IRA critic on Mon, 2016-11-21 21:46
Shares payable to his IRA constitute a direct rollover and there is no 60 day rollover period for a direct rollover. If Fidelity would void out the prior transaction and send him the shares personally then they would also report an NUA distribution on the 1099R. Other parts of the plan that were rolled over to an IRA would be reported on a different 1099R coded G. So all would be OK if Fidelity will re issue since the shares would never have reached his IRA. Before pursuing this client should verify that his IRA did not somehow receive the shares and should be told the prior issue is being voided. Of course, client does not have to use ALL his shares for NUA. He could have some rolled over and others distributed to him for NUA use. He also has the option once he receives the NUA shares to roll them to an IRA within 60 days if he changes his mind about NUA.