401K NUA question
Customer has a 401K at Fidelity, has company stock that we want to convert into a brokerage via NUA. I know the rules say the entire 401K has to be moved including the non stock portion, which would go to an IRA. Customer did a distribution from the 401k in 2015. Fidelity it now saying the NUA option is not available because of the previous distribution. Is this correct under IRS rules?
Permalink Submitted by Alan - IRA critic on Wed, 2025-02-05 15:12
An “intervening distribution” for NUA purposes is defined as a distribution taken from the plan after the last NUA triggering event (eg age 59.5 or separation from service) and prior to the LSD year. Therefore, for this person the triggering event must have been prior to the date of the 2015 distribution. For example, any direct rollover of any amount to an IRA would be treated as a distribution. This restriction does not make much sense, but has consistently been treated this way by the IRS for decades. This rule is also not clearly stated in the tax code, it’s just the IRS interpretation of the code.
An intervening distribution can be effectively erased if the taxpayer incurs another triggering event after that intervening distribution. But there are not many triggering events, as they are limited to reaching 59.5, separation from service, disability, or death. If the employee returned to work for the same employer, then retired again, they would have a new triggering event and would qualify for NUA.