Can NUA satisfy RMD?

Submitted by Eddie Holland on Fri, 2017-01-06 21:30

Can NUA satisfy a person’s RMD? For example, Sally owns $20,000 of Exxon stock inside her 401(k) with a cost basis of $5,000. Her RMD is $7,500. If Sally elects to liquidate her Exxon stock inside her 401(k) and elect the NUA tax treatment, can the entire $20,000 distribution be used to satisfy her RMD of $7,500 or will only the cost basis portion of the stock liquidation ($5,000) go towards the RMD of $7,500, leaving a remaining RMD balance of $2,500? Thanks in advance for the help.



Submitted by Alan - IRA critic on Fri, 2017-01-06 23:48

Both the cost basis and the NUA are credited against the RMD. This is the Box 1 amount of the 1099R. If this is the first distribution year RMD, it is possible to defer both the LSD and the first year RMD distribution to the second year. In this example   20,000 would then satisfy 2 years worth of RMDs. If this is done, there can be no distribution from the plan in the first year or it would be an intervening distribution that would disqualify NUA.



Submitted by Eddie Holland on Sat, 2017-01-07 02:04

That was my initial understanding but I found on your website an article written in July 2016 from the Slott Report Mailbag that states “NUA can be a valuable strategy but there are some limits. Unfortunately, while you can use the cost basis of company stock distributed from a company plan to satisfy your RMD for the year, the NUA on that stock cannot be used.”. https://irahelp.com/slottreport/can-i-use-my-nua-stock-satisfy-my-rmdCan you offer some clarification, Alan?



Submitted by Alan - IRA critic on Sat, 2017-01-07 02:15

Thank you for posting this discrepancy. However, I will support my position by IRS Reg. 1.401(a)(9)-5, Q&A 9:

Q-9. Which amounts distributed from an individual account are taken into account in determining whether section 401(a)(9) is satisfied and which amounts are not taken into account in determining whether section 401(a)(9) is satisfied?A-9. (a) General rule. Except as provided in paragraph (b), all amounts distributed from an individual account are distributions that are taken into account in determining whether section 401(a)(9) is satisfied, regardless of whether the amount is includible in income. Thus, for example, amounts that are excluded from income as recovery of investment in the contract under section 72 are taken into account for purposes of determining whether section 401(a)(9) is satisfied for a distribution calendar year. Similarly, amounts excluded from income as net unrealized appreciation on employer securities also are amounts distributed for purposes of determining if section 401(a)(9) is satisfied.(b) Exceptions. The following amounts are not taken into account in determining whether the required minimum amount has been distributed for a calendar year:(1) Elective deferrals (as defined in section 402(g)(3)) and employee contributions that, pursuant to rules prescribed by the Commissioner in revenue rulings, notices, or other guidance published in the Internal Revenue Bulletin (see § 601.601(d)(2) of this chapter), are returned to the employee (together with the income allocable thereto) in order to comply with the section 415 limitations.(2) Corrective distributions of excess deferrals as described in § 1.402(g)-1(e)(3), together with the income allocable to these distributions.(3) Corrective distributions of excess contributions under a qualified cash or deferred arrangement under section 401(k)(8) and excess aggregate contributions under section 401(m)(6), together with the income allocable to these distributions.(4) Loans that are treated as deemed distributions pursuant to section 72(p).(5) Dividends described in section 404(k) that are paid on employer securities. (Amounts paid to the plan that, pursuant to section 404(k)(2)(A)(iii)(II), are included in the account balance and subsequently distributed from the account lose their character as dividends.)(6) The costs of life insurance coverage (P.S. 58 costs).(7) Similar items designated by the Commissioner in revenue rulings, notices, and other guidance published in the Internal Revenue Bulletin. See § 601.601(d)(2)(ii)(b) of this chapter.



Submitted by Eddie Holland on Sat, 2017-01-07 02:31

Thanks, Alan. I really appreciate the insight. 



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