NUA from someone who already started RMDs
We have a client who worked until age 78 and didn’t need to take an RMD from a 401k. He is now 82 and has been taking RMDs from the 401k for the last 5 years. We just started working with him and realized he has company stock that has high appreciation and suggested that he consider pursuing a rollover with NUA strategy to save on taxes (primarily for his kids in the future). We contacted the plan administrator and they said he could not do NUA because he has already taken distributions from the 401k.
Does taking RMDs in previous years nullify the ability to complete an NUA strategy?
Permalink Submitted by Alan - IRA critic on Fri, 2024-08-30 13:25
Yes. Those distributions (whether RMDs or not) are treated as “intervening distributions”. These are distributions taken after the last NUA triggering event (separation from service), and prior to the year of the lump sum distribution for NUA purposes. Therefore in this case, NUA is not available for client. The next possible triggering event would be the death of client, and if the appreciated stocks were still in the 401k at death, the client’s beneficiary would be eligible for NUA.
Permalink Submitted by Brian Matter on Fri, 2024-08-30 13:32
Thank you