NUA and residual account balance
I have a client who used the NUA strategy last year, in 2016. She retired from P & G. She just received a notice (in 2017) from the P & G retirement plan that she has a “residual account balance” – in other words, additional funds have been deposited into her account after the total distribution. These residual funds are the result of trailing dividends.
Does this residual account balance negate the tax break of the NUA strategy?
Is there anything specific that she should do with this residual account balance?
Thank you in advance for your assistance.
Permalink Submitted by Alan - IRA critic on Tue, 2017-07-11 00:01
I am not aware of any IRS guidance on this situation. The IRS will usually be guided by the 1099R for 2016 which apparently reported Box 6 NUA and total distribution which infers a qualified LSD was done. Has the plan mentioned a corrected 1099R for 2016 which would be a disaster because the 60 days to do a rollover of the employer shares is long gone? If not, then I think she should leave the trailing dividends in the account at least until January so that there is not another 1099R from the same plan in January. Note that many plans will automatically transfer trailing dividends to the rollover IRA when issued, but if that did not happen in the year of the LSD, there is a potential red flag there.
Permalink Submitted by Dennis A. Parker on Tue, 2017-07-11 16:14
Thank you for your quick reply!The 2016 1099R did report the NUA in Box 6. The plan is not mentioning a corrected 1099R.The plan is offering a choice of the following options: 1- Cash Payment (NO!); 2-Payment of stock as sharies in kind, If balance includes P & G stock (NO!); 3-Rollover cash and/or shares; 4-Leave the money in plan.I do not know why the plan did not automatically transfer these trailing dividends to the rollover IRA that was established for the balance of the LSD.We ultimately want to rollover these funds into the rollover IRA. So I think we will leave the funds in the account until January, 2018, and roll it over the to the IRA at that point. Do you think that this would be the best approach?
Permalink Submitted by Alan - IRA critic on Tue, 2017-07-11 16:36
Yes, that is probably the best approach. Hopefully, the plan will not re think that 1099R following an internal audit. No news is good news.