NUA Opportunity

Submitted by John Bannan on Thu, 2019-05-09 13:21

I have read several pieces on the value of a distribution of company stock, the NUA. My question is this; what is the timeline for getting this done? If the client rolls over all but the stock today, does he/she have until 12/31 of this year to complete the transaction, or the end of the plan year? I have read some articles that say calendar year and some that say plan year. Which is it? And, can he/she roll SOME of the stock over and take SOME in-kind as a distribution?



Submitted by David Mertz on Thu, 2019-05-09 15:24

  • It must be done within one taxable year of the recipient.  Since virtually all individuals use a calendar tax year, the distribution of the balance to the credit must be completed within one calendar year.  Section 402(e)(4)(D)(i) says in part, “… the distribution or payment within one taxable year of the recipient of the balance to the credit of an employee which becomes payable to the recipient …”
  • Yes, treating only part of the company shares as NUA shares and rolling over the rest is permissible, even if all of the company shares are initially distributed as NUA shares.  However, reporting gets messy if the plan distributes all company shares in-kind as NUA shares and the recipient subsequently indirectly rolls over a portion of the shares, so it’s generally best to indicate to the plan the number of shares to treat as NUA shares so that the reporting on the Form 1099-R reflects the actual amount treated as NUA shares.  Shares rolled over are no longer eligible for NUA treatment.

Submitted by John Bannan on Fri, 2019-05-10 19:23

Does it matter if the client left in 2017? Does the taxable year rule pertains ONLY to when the clients rolls over everything but the company stock or does it pertain t when the client left the company?

Submitted by Alan - IRA critic on Fri, 2019-05-10 20:01

Separation from service is a triggering event. There cannot be any intervening years after the last triggering event in which distributions are taken that are not part of the LSD. However, if no intervening distributions are taken, several years could pass between the triggering event (separation) and the LSD year without eliminating the NUA option.  The taxable year for the cost basis of the shares is the LSD year. So in this case, as long as there were no distributions in 2018, 2019 can be the LSD year.  NOTE: Any new triggering event eliminates prior intervening distributions. Therefore, if separation was in 2017, but client took a 2018 non LSD distribution that would otherwise have disqualified NUA, if client turns 59.5 in 2019, that is a new triggering event and client is now qualified for NUA again.

Submitted by David Mertz on Fri, 2019-05-10 20:05

  • The NUA distribution does not need to be in the same year as the triggering event.  Once there has been a triggering event, as long as there have been no other distributions after the triggering event, the distribution of the entire balance within one taxable year can be in any year.  For example, if the triggering event was separation from service in 2017, as long as there were no rollovers or other distributions (other than perhaps ESOP dividends) from the plan in 2017 after separation from service or in 2018, the NUA distribution can occur in 2019.  If there has been an intervening distribution, the client would need to wait for another triggering event (disability, reaching age 59½ or death) to be able to distribute NUA.
  • Before requesting a distribution one should confirm with the plan that the requirements for distribution of NUA are satisfied.

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