NUA if pension LSD and 401(k) plan LSD are taken in different years
A recent retiree who is over age 59 1/2 (i) is eligible to receive a lump-sum distribution from his former employer’s defined-benefit pension plan and (ii) has low-basis employer stock in his former employer’s defined-contribution 401(k) plan. To date, the retiree has not taken any distribution from any qualified plan of his former employer.
Can the retiree roll a lump-sum distribution (“LSD”) from the pension plan to an IRA during 2017 and still elect net unrealized appreciation (“NUA”) treatment on the low-basis employer stock that will be part of a LSD from the 401(k) in 2018?
My understanding of IRC §402(e)(4)(D)(ii)(I) is that the LSD must occur within the same calendar year from all of the employer’s qualified plans of the same “kind” or “type” (i.e., pension plan, stock bonus plan or profit sharing plan). If that is correct, it seems that a 2017 LSD from the former employer’s pension plan would not prevent the retiree from electing NUA treatment on the low-basis employer stock that would be part of a 2018 LSD from the 401(k) plan.
I’ve seen a couple of articles/blog posts that state that all assets from ALL qualified plans held with the same employer must be distributed within the same calendar year, even if the qualified plans are of different types. This runs contrary to my understanding of IRC §402(e), and I’m hoping that this forum can provide some clarity on the issue.
Thanks!
Permalink Submitted by Alan - IRA critic on Thu, 2017-09-07 18:06
The general consensus has been that a DB plan is considered a pension plan and a 401k plan a profit sharing plan, so those would be separate balances to the credit of the employee. That said, the 401k plan administrator will be issuing the 1099R that is expected to report NUA on it, so it is always wise to discuss this issue with the 401k plan administrator before rolling over the DB plan, or if the DB plan has already been rolled over, before asking for a distribution of the employer shares.