IRA NUA

Submitted by David Mitchell on Sun, 2019-03-03 02:28

If someone is still working and has employer stock in their IRA, can they do an in-service rollover, sever service the next week after the rollover is completed and remove the employer stock in a later year and still qualify for NUA treatment?



Submitted by Alan - IRA critic on Sun, 2019-03-03 02:59

No. NUA is generated by gains on employer shares purchased in the plan. Once employer shares are rolled into an IRA all prior NUA is erased, and new NUA is only created in the 401k by a new purchase in the plan, not by a rollover contribution to the plan.

Submitted by David Mitchell on Sun, 2019-03-03 03:50

Sorry, I think I worded that poorly. What I am asking is if there is currently 100k of employer stock in my 401k plan and 400K of mutual funds that  same 401k, can I roll all of the mutual funds besides the employer stock out of my plan while I am still working (If it qualifies for in service rollover) and then apply NUA treatment to the remaining 100K of employer stock that I kept in the plan once I sever service later in the same year?

Submitted by Alan - IRA critic on Sun, 2019-03-03 15:34

Yes. A qualified lump sum distribution requires that by the end of the year that the employer shares are distributed, the entire balance of the 401k and similar plans such as ESOPs must be fully distributed. Therefore, you could take an inservice distribution in a year prior to completing your LSD with the employer shares. Your separation from service is a triggering event for NUA.  If AFTER your separate from service, you take a distribution from the plan of any kind in a year prior to the LSD year, that is considered an intervening distribution and disqualifies NUA unless you have another triggering event such as reaching 59.5 (if you separated prior to 59.5).

Submitted by David Mitchell on Sun, 2019-03-03 20:34

Thank you. After I sever service, can I sell a portion of the employer stock to bring down my basis? If so How in the basis calculated in the IRA?  Can it be Specific share or does it default to average?

Submitted by Alan - IRA critic on Sun, 2019-03-03 20:49

  • The accounting in the 401k plan determines if you receive shares of different lots with different cost basis, or the more usual accounting using average cost basis for all shares. You can distribute as many of the shares as you wish, and do not have to utilize NUA on all of them. If there are different cost basis for some shares, you might sell the higher cost basis shares in the plan and only distribute the lower cost basis shares for NUA.
  •  There is another recent thread here titled 60 day rollover for NUA that illustrates how complex it is to have all shares distributed, and then do a partial rollover of some shares to an IRA. Better to do homework first and determine how the plan accounting works with respect to cost basis figures per share and then distribute only the number of shares that will be used for NUA.
  • If any shares are rolled to an IRA, they no longer can be used for NUA and do not have a cost basis or NUA. The only basis in an IRA is the non deductible contributions made and reported on Form 8606.

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