NUA – 401k Savings Plan with Profit Sharing Trust
I have a situation that has arisen on NUA potential with a retirement plan at P&G (held at Alight). Their retirement plan is comprised of a 401k Savings Plan and a Profit Sharing Trust (PST). The PST Plan is where most of the NUA opportunity is. The client was required to take his first RMD (2024 RMD) by 4/1/2025. In December 2024, Alight automatically sent him his RMD from his 401k Savings Plan but did not send the RMD from his PST Plan.
It was my interpretation that this distribution from his Savings Plan in December 2024 has disqualified him from doing the NUA from his PST Plan. However, when calling Alight, he was told that this 401k Savings Plan distribution (previously mentioned RMD) is independent from the PST Plan and does not disqualify his NUA opportunity now from the PST Plan. Can they rely on this interpretation from the plan provider (Alight)? It surprised me to hear this but could be a significant benefit if the NUA opportunity is still a potential. I’m not convinced the plan provider is correct
Permalink Submitted by Alan - IRA critic on Tue, 2025-02-25 21:13
These two plan are probably treated as “similar plans” with respect to the LSD requirements, but it is not clear whether this extends to the concept of intervening distributions from the plan that is not funding the NUA distribution. If the plan will issue a 1099R with NUA in Box 6 and the total distribution box checked, the client should be pretty safe using NUA as the IRS is likely to be guided by the 1099R.
It seems like the client might have covered both the 2024 and 2025 RMD with the LSD, as this is a frequent strategy utilized for those who have delayed distributions until RMD age. Such a delay to the RBD year would have also prevented the intervening distribution issue from occurring.