NUA – In-Service distribution of company stock only from DC Plan – with NUA?

Submitted by H. Reniger III on Tue, 2017-04-25 20:01

Assuming the Plan permits – is it possible for an employee of a Fortune 500 company who is over 59-1/2 to take an In-Service Distribution of just Company Stock (roughly 30% of holdings) from the Plan – then pay tax at the Capital Gain rate – and then put the proceeds into a Roth IRA?



Submitted by Alan - IRA critic on Wed, 2017-04-26 00:39

  • NUA can be done after a triggering event, such as reaching 59.5. But this also requires a lump sum distribution of all plans of similar type with that company, therefore 30% would not qualify. In addition, the plan provisions may not allow a distribution of certain portions of the plan balance at 59.5. And the employee  would have to cease participation in all such plans for an undetermined period following the LSD. It is rare that an LSD is done prior to separation from service due to these various hurdles.
  • If the LSD is possible under the above conditions and the employee was deemed to have received NUA shares as part of the LSD, the employee cannot also roll over any of the proceeds from shares that received the LT cap gain treatment. NUA and an IRA rollover are mutually exclusive. However, if NUA shares are distributed and the employee chooses to roll over some of the shares and sell others using NUA, that is an option because for any particular share, either the NUA or the rollover is the end result. Another option for the employee is to sell all or some of the shares (not a taxable sale) and roll over the cash proceeds from the sale to an IRA.

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