NUA in 401(k) Plan
My client recently retired from a private company. He has a significant amount of employer stock in the plan. Is he eligible to take advantage of the NUA rules (assuming he takes a lump sum)? Is there a time limit for his electing NUA treatment?
Permalink Submitted by Alan - IRA critic on Wed, 2017-04-05 19:50
He is eligible for NUA using separation from service as his triggering event. He can take his LSD now or later, but cannot take a non LSD distribution or it will erase his triggering event by what is known as an intervening distribution. He would have to wait for a new triggering event, such as reaching 59.5 but if he is already past 59.5 there would not be another triggering event except his death. Therefore, if he does not take any other distributions, he could wait a few more years to take his LSD (but not after RMDs) and still utilize NUA when he does. He should ask the plan for a quote on his cost basis per share. Ideally, it should be under 30% for NUA to most beneficial.