Using NUA for an RMD – 3 Steps

Submitted by Brian Devers on Mon, 2019-08-12 18:56

Concerning your recent Slott Report: USING NUA FOR AN RMD – 3 STEPS (from August 5) —- am I missing a fact or an issue????

The situation: a client is over age 70 1/2, is retiring, has company stock in his 401k and wants to take advantage of NUA.

Client must take RMD BEFORE rolling out the stock to a regular brokerage account; everyone knows that.

The article is directing the client —
Step 1 –to first transfer an appropriate number of shares of the NUA (company) stock to an outside brokerage to cover the RMD amount.
Then (Step 2) roll over the Non – NUA company stock holdings to an IRA.
Then (Step 3) roll out the company stock to a non-qualified brokerage account.

Seems the article is saying this is the ONLY WAY TO AVOID the 20% withholding ??

Can’t the client just do —
• A distribution of cash equaling the RMD from the cash/investment portion of the 401k
• a trustee to trustee transfer of the remaining balance from the cash/investment portion of the 401k to the client’s IRA
– and avoid the 20% withholding
• THEN journal the NUA company stock holdings to a non-qualified brokerage account
– and not diminish the company stock holdings??

Your Step 1 seems to diminish the stock holdings of the client as you are taking the RMD amount from the Client’s company stock holdings versus from the other cash and investments.



Submitted by Alan - IRA critic on Tue, 2019-08-13 00:05

  • The value of the employer shares to be used for NUA is often enough to cover the first two RMD years, therefore the NUA shares are distributed between Jan 1 and April 1 of the RBD year, the first year RMD and the second year RMD is satisfied by the cost basis plus NUA of those shares. In that case, only 2 steps are needed, first the distribution of those NUA shares and then the direct rollover of the remainder of the plans of similar type in the same calendar year to complete a qualified LSD.
  • Mandatory 20% withholding does not apply to the distribution of employer shares and cash up to $200 per Sec 3405(e)(8). This applies as well to amounts in excess of the RMD. If the retirement is prior to age 75, 2 years of RMDs will be less than 8% of the applicable plan balance for the two prior year 12/31 dates.
  • However, if the FMV of the NUA shares is not enough to cover either one or two years of RMDs, then the second distribution can be for the balance of the RMD and there is no mandatory withholding because this is not an eligible rollover distribution. 3rd step would be the balance of the plan in a direct rollover.
  • The above guidelines differ from both yours and those of the report somewhat. Your recommendation’s first two steps will work if there is no NUA stock, but if there is employer shares to be distributed to the taxable brokerage, doing that last will prevent any of the employer shares from being applied to one or two year’s worth of RMDs. Stock holdings are not being diminished, they are being used for an in kind RMD distribution. There are several variables and timing issues to juggle when LSDs, RMDs (1 or 2 years), and NUA shares are all part of the equation.

Submitted by Brian Devers on Tue, 2019-08-13 17:34

Alan, thanks for the response.I see your point, you still have the shares, used for the RMD — and doing it in the 2nd year allows the aggregation.Thank you for the explanation

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